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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): Not Applicable
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Crown Books Corporation
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-11457 52-1227415
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(State or other jurisdiction of (Commission File No.) (I.R.S. Employer Identification
incorporation) No.)
</TABLE>
3300 75th Avenue, Landover, MD 20785
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (301) 226-1200
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Not applicable
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(Former name or former address, if changed since last report.)
Page 1 of 4 pages
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Item 5. Other Events
On July 14, 1998, Crown Books Corporation ("Registrant") and its
subsidiaries, Crown Books East Corporation, Crown Books West Corporation, Crown
Books National Corporation, Super Crown Books Corporation and Crown DHC
Corporation (collectively, the "Subsidiaries") filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the "Court"). The cases of
Registrant and the Subsidiaries, which are being jointly administered, are
pending in such Court as Cases Nos. 98- 1575(RRM) through 98-1580(RRM)
inclusive. They are referred to herein individually as a "Case" and collectively
as the "Cases. Each of Registrant and the Subsidiaries is continuing to operate
its business as a debtor-in-possession.
At the time of Registrant's bankruptcy filing, Registrant and its
subsidiaries operated a chain of approximately 177 retail book stores in nine
distinct geographic markets located throughout the United States. Subsequently,
Registrant determined that it was in Registrant's best interest, and the best
interest of its creditors, to close up to 79 of its retail stores (such 79
stores are referred to herein as the "Stores").
On July 22, 1998, the debtors-in-possession in the Cases, including
Registrant, filed with the Court a motion (the "Motion") seeking an order (a)
approving the closing of certain of the debtors-in-possession' retail stores,
(b) authorizing "going out of business" sales at such store locations, (c)
exempting toe proposed sales from state and local regulatory laws and lease
provisions with which a debtor-in-possession might otherwise be required to
comply, authorizing the debtors-in-possession to enter into an agency agreement
with a liquidator providing for the closing of some or all of the Stores, (e)
authorizing the conduct of an auction sale of the rights to enter into such, and
(f) approving certain notice and bidding procedures.
On August 12, the auction contemplated by the Motion was conducted. A
joint venture among Schottenstein Capital Group, LLC, Gordon Brothers Retail
Partners, LLC and the OZER Group, LLC (collectively, the "Liquidator") was the
successful bidder. Following the auction, the Liquidator and Registrant entered
into an agreement (the "Agency Agreement") authorizing the Liquidator to
liquidate 38 of the Stores.
The Court held a hearing to consider the Motion on August 14, 1998.
Following the hearing, the Court entered an order (the "Order") substantially
granting the relief requested in the Motion, subject to the resolution of
certain objections to the Motion then pending. Such objections were resolved on
August 20, 1998.
The Agency Agreement provides that the Liquidator, as Registrant's
Agent, will liquidate the 38 designated Stores (the "Designated Stores"), and
will pay to Registrant a "guaranteed amount," calculated in accordance with a
formula, estimated to be approximately $11,300,000, subject to adjustments for
returned goods.
The Order also authorized the debtors-in-possession to close up to an
additional 41 Stores (the "Additional Stores"). Registrant has entered into an
agreement with its major inventory supplier (the "Return Agreement")
pursuant to which the inventory at the Additional Stores will be returned to the
supplier. Under the Return Agreement, Registrant will receive a credit against
the debtors-in-possession' cost of the returned inventory estimated to be
approximately $12.3 million (the "Ingram Claim Amount") subject to the 502(d)
Reservation, as defined in the Return Agreement, and is subject to a reduction
not to exceed $1 million if the parties are unable to reconcile the discrepancy
within 30 days. Any resulting dispute will be presented to the court for
determination.
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Item 7. Financial Statements and Exhibits
99.1 The Motion
99.2 The Order
99.3 The Agency Agreement
99.4 The Return Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CROWN BOOKS CORPORATION
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(Registrant)
Dated: August 25, 1998 By:/s/ Stephen M. Petty
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Stephen M. Petty,
Chief Financial Officer
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EXHIBIT 99.1
HEARING DATE: JULY 31, 1998 AT 2:00 P.M.
OBJECTION DEADLINE: JULY 30, 1998 AT 12:00 NOON
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
CROWN BOOKS CORPORATION, )
SUPER CROWN BOOKS CORPORATION, ) Case No. 98-1575 (RRM)
CROWN BOOKS EAST CORPORATION, )
CROWN BOOKS WEST CORPORATION,)
CROWN BOOKS NATIONAL CORPORATION, ) (Jointly Administered)
and CROWN DHC CORPORATION, )
)
Debtors. )
MOTION OF DEBTOR-IN-POSSESSION PURSUANT TO
SECTIONS 363 AND 105(a) OF THE BANKRUPTCY CODE
FOR AN ORDER: (a) APPROVING THE CLOSING OF CERTAIN
STORES, (b) AUTHORIZING "GOING-OUT-OF-BUSINESS" SALES
AT THOSE LOCATIONS, (c) EXEMPTING THE SALES FROM
STATE AND LOCAL REGULATORY LAWS AND LEASE PROVISIONS
WITH WHICH THE DEBTOR MIGHT OTHERWISE BE REQUIRED
TO COMPLY, (d) AUTHORIZING THE DEBTOR TO ENTER INTO AN
AGENCY AGREEMENT WITH A JOINT VENTURE CONSISTING
OF THE OZER GROUP LLC, SCHOTTENSTEIN BERNSTEIN
CAPITAL GROUP, INC. AND GORDON BROTHERS RETAIL
PARTNERS, LLC, (e) AUTHORIZING THE CONDUCT OF AN
AUCTION AND (f) APPROVING CERTAIN NOTICE AND BIDDING
PROCEDURES, INCLUDING BID PROTECTION AND A BREAK-UP FEE
Crown Books Corporation ("Crown" or the "Debtor"), as one of the
above-captioned affiliated debtors and debtors-in-possession (collectively, the
"Debtors"), by and through its undersigned counsel, hereby moves this Court for
entry of an order pursuant to sections 363 and 105(a) of title 11 of the United
States Code (the "Bankruptcy Code"), for an Order (a) approving the
discontinuation of operations at certain of the
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Debtor's stores (the "Stores"), (b) authorizing the Debtor to conduct
"going-out-of-business" sales (the "GOB Sales" or the "Sales") at the Stores and
thereby selling all merchandise located at the Stores (the "Merchandise") free
and clear of liens,(1) (c) exempting the Sales from state and local regulatory
laws and lease provisions with which the Debtor might otherwise be required to
comply, (d) authorizing the Debtor to enter into the attached agency agreement
(the "Agency Agreement" or the "Agreement") with a joint venture consisting of
The Ozer Group LLC, Schottenstein Bernstein Capital Group, Inc. and Gordon
Brothers Retail Partners, LLC (the "Agent"), (e) authorizing the conduct of an
auction and (f) approving certain notice and bidding procedures, including bid
protection and a break-up fee (the "Motion").
In support of this Motion, the Debtor respectfully represents as
follows:
BACKGROUND
1. On July 14, 1998 (the "Petition Date"), the Debtors each filed
with this Court their voluntary petitions for relief under Chapter 11 of Title
11, United States Code (the "Bankruptcy Code"). Pursuant to Sections 1107 and
1108 of the Bankruptcy Code, the Debtors are continuing to operate their
businesses and manage their properties and assets as debtors-in-possession. No
trustee, examiner or committee has been appointed in the Debtors' Chapter 11
cases.
2. Crown, a Delaware corporation, is a discount retailer
specializing in the sale of books and book-related products. Crown currently
operates approximately 177 stores in nine markets (Washington, D.C.,
Philadelphia, Chicago, Dallas, Houston,
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(1) Debtor's furniture, fixtures and equipment may also be sold at the
Debtor's option. See discussion of the Agency Agreement, infra.
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Seattle, San Francisco, Los Angeles and San Diego). The majority of Crown's
stores are located in suburban strip mall shopping centers, with a few stores
located in downtown shopping areas. Crown DHC Corporation, a wholly owned
subsidiary of Crown holds the "Crown" and "Supercrown" trademarks. The other
Debtors herein are nonoperating wholly-owned subsidiaries of Crown with no
material assets. The Debtors' corporate headquarters are located in Landover,
Maryland.
3. As of May 2, 1998, the Debtors had, on a consolidated basis,
assets of approximately $130,387,000 and liabilities of approximately
$100,525,000.(2) For the fiscal year ended January 31, 1998, Crown had total
sales of approximately $297,505,000. The Debtors currently have approximately
2,700 full-time and part-time employees.
4. This Court has jurisdiction over this motion under 28 U.S.C.
Sections 157 and 1334, which is a core proceeding within the meaning of
28 U.S.C. Section 157(b). Venue of the Debtor's chapter 11 case and of this
motion in this district is proper pursuant to 28 U.S.C. Sections 1408 and
1409. The statutory predicates for the relief requested herein are sections
105(a) and 363 of the Bankruptcy Code.
5. Prior to the Petition Date, the Debtor conducted an
operational appraisal which revealed that on balance many of the Stores were
unprofitable and a source of continuing financial losses. Accordingly, the
Debtor has decided to liquidate Merchandise and close at least 43, and up to 79,
of its 177 stores.
6. The Debtor has concluded that the most economical method for
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(2) This financial information is reported at book value and may not reflect
actual market value or realizable value. The book value also does not
reflect certain off-book or contingent liabilities that may be
material.
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liquidating the Merchandise was through a public liquidation sale. Accordingly,
the Debtor has entered into the Agency Agreement with a joint venture comprised
of The Ozer Group LLC, Schottenstein Bernstein Capital Group, Inc. and Gordon
Brothers Retail Partners, LLC (such entities having been heretofore defined
collectively as the "Agent"). A copy of the Agency Agreement is annexed hereto
as Exhibit A.
7. As set forth more fully below, the Debtor believes that a
prompt liquidation of the Merchandise at the Stores in question, in accordance
with the Agent's proposal embodied in the Agreement, would result in the best
recovery for Debtor's creditors from these.
THE GOB SALES
8. Upon Court approval, the Debtor, with the assistance of the
Agent, will conduct GOB Sales at the Stores. Because of the nature of the
Merchandise, the Debtor has determined that it would be inefficient and
uneconomical to redistribute the Merchandise to other locations. Thus, in an
effort to maximize the value of the Merchandise for the benefit of its estate
and creditors, the Debtor seeks authority to conduct the Sales at the Stores.
THE AGENCY AGREEMENT(3)
9. The Debtor has not yet determined whether the GOB Sales will
be conducted at 43 Stores or 79 Stores, and the Agency Agreement provides for
both contingencies. In the event that the Debtor chooses to conduct GOB Sales at
79 Stores,
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(3) The following is a brief discussion of certain provisions of the
Agreement. Parties are directed to the Agreement annexed hereto for a
full explication of its terms.
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the Debtor may elect either (i) a guaranteed recovery of 40% of the value of the
Merchandise measured at "retail" (as defined under the Agency Agreement) (the
"Guaranteed Amount")(4) or (ii) a Guaranteed Amount of 38% of the value of the
Merchandise measured at retail and, if the proceeds of the Sales exceed the
Guaranteed Amount plus expenses of the Sales and the Agent's 3% fee, the Debtor
and the Agent will then share the excess proceeds equally. Should the Debtor
choose to conduct GOB Sales at 43 Stores, the percentage returns under the
Guaranteed Amounts are reduced to 38.75% and 37.25%, respectively. The material
terms of the Agency Agreement are substantially identical irrespective of
whether the Debtor chooses to conduct GOB Sales at 79 or 43 Stores (with obvious
reductions in amounts); parties are advised to review the Agency Agreement
annexed hereto as Exhibit A for specific provisions relating to the number of
Stores at which GOB Sales will be conducted.(5)
10. The foregoing pricing for the 79-Store transaction assumes
that the Merchandise to be sold via the Sales has an aggregate Retail Price of
not less than $40,000,000, and the Agreement further provides for pricing
adjustments in the event that discrepancies arise regarding the amount and value
of the Merchandise.
11. The Debtor estimates that under the 40% guaranteed recovery,
the Sales will provide a minimum recovery of $16.0 million. Under the second
approach outlined above, the Sales will generate a minimum recovery of $15.2
million (without factoring in the Debtor's potential upside). The foregoing
amounts are minimum
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(4) Capitalized terms not defined herein shall have the meanings assigned to
such terms in the Agency Agreement.
(5) For the sake of clarity, this Motion discusses in detail only the
proposed 79-Store transaction; again, parties are directed to the Agency
Agreement for a complete discussion of the terms of both proposals.
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calculations, and based upon its analysis of the Merchandise, the Debtor
anticipates a greater return than the minimum amounts set forth above.
12. Pursuant to the Agency Agreement, the Agent (i) will pay the
Debtor 50% of the Guaranteed Amount by wire transfer of immediately available
funds and (ii) will post a letter of credit equal to 30% of the Guaranteed
Amount within one business day following entry of an Order approving this
Motion, based upon the agreed upon book value of the Merchandise as of such
date. After the Debtor and the Agent have (i) completed a reconciliation of the
Merchandise and (ii) determined the Maximum Return Credit (as discussed more
fully below), the balance of the Guaranteed Amount shall be paid within two (2)
business days.
13. At any time prior to the date seven (7) days after the
conclusion of the Sales, the Agent shall have the right, in its sole
discretion, to return to Crown Merchandise have an aggregate Retail Value of up
to 35% of the total Retail Value of all of the Merchandise (as more
specifically defined in the Agreement, the "Credit Merchandise"). Upon
determination of the Retail Value of all Credit Merchandise, the Agent shall be
entitled to a cash credit against the unpaid portion of the Guaranteed Amount
in an amount equal to 40% of the aggregate Retail Value of the Credit
Merchandise (such amount being the "Return Credit"). The amount calculated as
the Return Credit is based upon the Debtor's representations that this figure
translates into approximately 77% of cost for Credit Merchandise).
14. By separate motion filed concurrently herewith, the Debtors
are seeking approval of a Book Return Agreement (the "Agreement") with Ingram
Book Company ("Ingram") which provides, inter alia, for the Debtors to return
books to Ingram
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in exchange for a reduction of Ingram's pre-petition claim and for post-petition
trade credit. In addition, and in connection with the Motion, the Agreement with
Ingram also provides that Ingram will repurchase up to 35% of the Merchandise in
the Stores at 77.5% of Crown's cost of such Merchandise. In effect, the
foregoing commitment by Ingram constitutes a "backstop" for the Debtor to ensure
the success of the GOB Sales and to ensure the highest possible return from the
GOB Sales.
15. To secure payment of the Guaranteed Amount, the Agent shall
deliver to the Debtor an irrevocable standby letter of credit in original face
amount equal to the sum of the Maximum Return Credit and naming Crown as
beneficiary (the "Letter of Credit"). The Debtor and Agent agree that the face
amount of the Letter of Credit shall be reduced on a dollar for dollar basis to
the extent Agent makes payments to the Debtor pursuant to the terms of the
Agreement.
16. Pursuant to the Agency Agreement, the Agent shall be
responsible for all store operating expenses (which shall be reconciled on a
weekly basis) arising during the term of the Sales. Such expenses shall include:
payroll; payroll taxes and benefits; Agent's supervisor's fees and travel costs;
advertising and promotion costs; in-store signage; credit and fees and discounts
(at Debtor's customary rates) and charge backs; long distance telephone expenses
from the Stores attributable to the Sale; inventory insurance; 50% of inventory
taking fees; and, an incentive program for Store employees in a total amount of
up to 10% of the base payroll for the Stores (which amount is inclusive of taxes
and benefits).
17. Finally, at the Debtor's option, the Agent will arrange for
the sale of the furniture, fixtures and equipment in the stores, stockrooms,
warehouses and offices
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of the Debtor (the "FF&E"), and will receive a commission of 10% of the sales
price received, less sales taxes. In addition, the Debtor will reimburse the
Agent for all previously authorized out of pocket expenses incurred in
connection with the disposition of the FF&E. At its option, the Agent will
provide to the Debtor a guarantee on the FF&E. At the conclusion of the sale of
the FF&E, the Agent will be permitted to leave unsold FF&E in place.
RELIEF FROM STATE AND LOCAL REGULATORY
STATUTES AND ORDINANCES AND LEASE
PROVISIONS REGULATING GOING-OUT-OF-BUSINESS SALES
18. As discussed above, the Debtor has determined that the
continued operation of the Stores is no longer feasible or desirable, and,
therefore, has determined to close the Stores and conduct the Sales.
19. However, certain states, counties and municipalities in which
Stores are located have licensing and similar requirements with respect to GOB,
liquidation and store closing sales. Some of the leases of the Stores also may
prohibit GOB Sales and/or may restrict the placement of signage in connection
with such sales. These state and local requirements, and lease restrictions,
would place an unacceptable burden on the estate and its creditors, in both
monetary terms and in the time that is required to comply with them.
Accordingly, in the Debtor's view, it is necessary and appropriate for the Court
to authorize the Debtor, under the Court's section 105(a) power, to conduct the
Sales for up to 105 days following entry of an order authorizing the Sales,
without the time-consuming process of obtaining various state and local licenses
and/or
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complying with any additional requirements under the relevant leases.(6)
APPLICABLE AUTHORITY
20. Section 363(b)(1) of the Bankruptcy Code provides as follows:
(b)(1) The trustee, after notice and a hearing, may use, sell or
lease, other than in the ordinary course of business, property of
the estate.
11 U.S.C. Section 363(b)(1).
Section 363(c)(1) of the Bankruptcy Code provides, in relevant
part as follows:
(c)(1) If the business of the debtor is authorized to be operated
... and unless the court orders otherwise, the trustee may enter
into transactions, including the sale or lease of property of the
estate, in the ordinary course of business, without notice or a
hearing ...."
11 U.S.C. Section 363(c)(1).
Section 363(f) of the Bankruptcy Code provides as follows:
(f) The trustee may sell property under subsection (b) or (c) of
this section free and clear of any interest in such property of
an entity other than the estate, only if
(1) applicable nonbankruptcy law permits sale of such
property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such
property is to be sold is greater than the aggregate value of all
liens on such property;
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(6) Some statutes and ordinances automatically permit GOB sales when the GOB
sale has been authorized by a bankruptcy court, while others would
continue to impose onerous requirements whether or not a bankruptcy
court authorizes the GOB sale. The order the Debtor seeks would address
the problems resulting from both kinds of regulatory schemes.
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(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or
equitable proceeding, to accept a money satisfaction of such
interest.
11 U.S.C. Section 363(f).
Section 105(a) of the Bankruptcy Code provides, in pertinent
part, as follows:
(a) The court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this
title.
11 U.S.C. Section 105(a).
This Court, therefore, has the authority to grant all of the
relief requested.
BEST INTERESTS OF THE ESTATE
21. As set forth above, the Debtor anticipates a minimum recovery
of between approximately $15.2 and $16.0 million from the Sales contemplated
under the Agency Agreement. If the proposed liquidation of the Merchandise and
closure of the Stores does not occur as set forth in the Agency Agreement, this
recovery will be jeopardized. Indeed, it is beyond dispute that the Merchandise
is not appreciating in value over time. Accordingly, a delay in the liquidation
of Merchandise proposed herein would result in decreased returns to Debtor's
creditors.
22. Other aspects of closing the Stores are strongly in the best
interests of the estate and its creditors. The Merchandise will be converted to
cash, and the Debtor has taken reasonable steps to maximize its realization of
that property's value. Similarly, maximizing value requires that the Debtor be
exempted from compliance with local laws
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imposing regulatory hurdles on those conducting GOB Sales. Other than as a
revenue generating device, those laws' only real regulatory concern is the
prevention of fraud -- in particular, false statements that a store is "going
out of business" and will be closed. Here, with respect to the Stores in
question, there is no doubt.
23. Accordingly, the Debtor respectfully submits that the entry
of an order by this Court granting the relief requested in this Motion is in the
best interests of the Debtor, its estate and its creditors.
SALE OF THE MERCHANDISE FREE AND
CLEAR OF ALL LIENS, CLAIMS AND ENCUMBRANCES
24. Pursuant to section 363(f) of the Bankruptcy Code, a
debtor-in-possession may sell all or any part of its property free and clear
any and all liens, claims or interests in such property if (i) such a sale is
permitted under applicable non-bankruptcy law, (ii) the party asserting such a
lien, claim or interest consents to such sale, (iii) the interest is a lien and
the purchase price for the property is greater than the aggregate amount of all
liens on the property, (iv) the interest is the subject of a bona fide dispute,
or (v) the party asserting the lien, claim or interest could be compelled, in a
legal or equitable proceeding, to accept a money satisfaction for such interest.
See 11 U.S.C. Section 363(f); In re Elliot, 94 B.R. 343, 345 (E.D. Pa. 1988)
(section 363(f) written in disjunctive; court may approve sale "free and clear"
provided at least one of the subsections is met).
25. The Debtor expects to negotiate an agreement with its
post-petition secured Lenders to obtain their consent to the sale of the
Merchandise free and clear of liens, claims and encumbrances. To the extent such
consent is not obtained, the Debtor
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requests that the liens, claims and encumbrances asserted against the
Merchandise and any other creditors purporting to be secured creditors, be
transferred and attach to the net proceeds from the Sales received by the
Debtor, subject to the rights, claims, defenses and objections, if any, of any
or all interested parties with respect thereto.
26. Accordingly, the Debtor requests that the order approving the
sale of the Merchandise and, if applicable, FF&E, provide that such sale is free
and clear of all liens, claims and encumbrances in accordance with section
363(f) of the Bankruptcy Code.
ALTERNATIVELY, THE DEBTOR MAY SEEK
AUTHORITY TO ACCEPT A HIGHER AND BETTER OFFER
27. While the Debtor has determined that the bid of the Agent is
superior to the proposals that have been submitted to conduct the Sales, the
Debtor expressly reserves the right to select an alternative proposal if it is
determined, in the exercise of the Debtor's business judgment, that such a
proposal represents the highest and best offer received for the Debtor's assets
and will maximize value for the Debtor's creditors.
28. Accordingly, the Debtor will accept bids from liquidators at
the auction (described more fully below) and reserves the right to seek
authority from this Court to conduct store closing sales in each of the Stores
in conjunction with the prevailing bidder.
PROPOSED NOTICE AND BIDDING PROCEDURES IN
CONNECTION WITH THE DEBTOR'S SALE OF THE PROPERTY
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29. In order to ensure adequate notice to interested parties, the
Debtor proposes to deliver notice in the form annexed hereto as Exhibit via hand
delivery or Federal Express to (i) those persons who have previously expressed
an interest in the assets to the Debtor, (ii) the United States Trustee, (iii)
all secured creditors of record, (iv) counsel to the Official Committee of
Unsecured Creditors (once appointed), (v) each party that has filed a notice of
appearance in these cases, (vi) the Debtor's landlords in the stores affected by
the Sales and (vii) the Attorneys General in the states in which the Debtor
proposes to conduct the Sales. This notice will result in the notification of
the primary parties in interest to determine if anyone has an objection or
wishes to better the offer submitted by July 30, 1998. The benefit of any
further notice would not warrant the expense, and the Debtor respectfully
submits that no other or further notice of the Motion need be given.
30. The Debtor also requests approval of the following bidding
and overbid procedures in connection with this matter, all in accordance with
the terms of the Asset Purchase Agreement:
- Any party wishing to submit a competing offer for the
Merchandise (either in the form of an asset purchase
agreement or an agency agreement to conduct store
closing sales) must submit such offer, in writing, to
the under signed counsel to the Debtor no later than
12:00 noon prevailing Eastern Time on July 30, 1998;
- To be considered a "Qualified Bidder" the party must
accompany such written offer with (1) the identity of
such
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potential bidder and an officer(s) or authorized
agent(s) who will appear on behalf of such bidder, (2)
evidence, satisfactory to the Debtor, of the bidder's
financial ability to complete the transaction
contemplated by such offer. In addition, such party
must bring to the auction a certified check in the
amount of $500,000 to be deposited by the counsel to
the Debtor in an escrow account, such sum to be
credited to the purchase price if such bidder is a
successful bidder or, if not, returned to the potential
bidder. In the event that the successful bidder does
not close, the earnest money deposit will be retained
as liquidated damages and the Debtor shall seek to
close with the next highest bidder.
- In the event an offer is received from a Qualified
Bidder, an auction will be conducted at the offices of
Young Conaway Stargatt & Taylor, LLP commencing at
10:00 a.m. on July 31, 1998 to consider any and all
bids, and any Qualified Bidder may appear and submit
its highest and final bids for the Merchandise.
- The following requirements apply to all competing
offers: (i) all bidders must agree to be bound by the
terms and conditions of the Agreement (with appropriate
modifications for the identity of the successful
bidder and the increased price), (ii) all bidders must
provide adequate
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assurance of their ability to perform their obligations
under this Agreement, (iii) the initial bid must be for
an increase in the percentage on which the Guaranteed
Amount is based of at least .25%, with successive bids
thereafter for an increase in the percentage on which
the Guaranteed Amount is based of at least .10% over
the previous bid, (iv) competing bids shall not be
conditioned on the outcome of unperformed due diligence
by the bidder, and (v) Agent shall be permitted to bid
and submit a higher offer.
- Each competing offer made or deemed to be made shall
remain open and irrevocable until the earliest to occur
of (i) entry of an order approving the sale of the
Merchandise which is the subject of such offer and the
dissolution of any stays of such order, (ii) withdrawal
of the Merchandise from any sale, or (iii) consummation
of a sale of the Merchandise to any other bidder.
- The Debtor reserves the right, to (i) determine in its
discretion which offer, if any, for the Merchandise is
the highest and best offer and (ii) reject at any time
prior to entry of an order of the Court approving an
offer, any offer which the Debtor, in its discretion,
deems to be (a) inadequate or insufficient, (b) not in
conformity with the requirements of
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the Bankruptcy Code, the Bankruptcy Rules, the Local
Bankruptcy Rules or the terms and conditions of
Agreement set forth herein, or (c) contrary to the best
interests of the Debtor and its estate. The Debtor will
have no obligation to accept or submit for Court
approval any offer presented at the Auction.
- If no offer is received from a Qualified Bidder, no
auction will be conducted and the Debtor shall request
that the Court enter an order approving this Motion.
THE PROPOSED BREAK-UP FEE
31. Additionally, the Debtor requests that if the Agent is not
ultimately the maker of the highest and best offer that the Court approve the
payment to the Agent of a break-up fee of $75,000 as required by the Agreement
(the "Break-Up Fee"). The Debtor believes that the proposed Break-Up Fee is
fair, reasonable, and in the best interests of the estate. It has become
well-settled that break-up fees are appropriate compensation for the risk
involved in preparing and proposing a bid, which thereby enhances the value of
the debtor's estate by attracting initial bids and establishing a minimum
standard for competing bids, if any. See In re Integrated Resources, Inc., 147
B.R. 650, 651-52 (S.D.N.Y. 1992), app. dism'd, 3 F.2d 49 (2d Cir. 1993); see
also In re 995 Fifth Ave. Assoc., 96 B.R. 24 (Bankr. S.D.N.Y. 1989); cf. In re
America West Airlines, Inc., 166 B.R. 908, 913 (Bankr. D. Ariz. 1994) (applying
a "best interest of the estate" standard).
- 16 -
<PAGE> 17
32. Factors considered in evaluating proposed break-up fees in
chapter 11 cases include the following:
(a) whether the relationship of the parties who negotiated
the fee is marked by self-dealing or manipulation;
(b) whether the fee hampers, rather than encourages, bidding;
and
(c) whether the amount of the fee is reasonable in relation
to the proposed purchase price. Integrated Resources, 147 B.R. at 656. Further,
courts have either evaluated the debtor's decision to offer the break-up fee
according to (i) the business judgment rule, id. at 660, or (ii) whether the fee
serves the best interests of the debtor's estate, creditors and other parties in
interest. See, e.g., In re S.N.A. Nut Co., 186 B.R. 98, 104 (Bankr. N.D. Ill.
1995); America West Airlines, 166 B.R. 908.
33. The Ozer Group, LLC, one of the joint venturers comprising
the Agent, is affiliated with Paragon Capital, LLC, one of the Debtors'
postpetition DIP lenders. Irrespective of this relationship, the Break-Up Fee
was negotiated by sophisticated parties represented by competent counsel, and
the Agent's offer is expressly contingent on Bankruptcy Court approval thereof.
The Break-up Fee will not exceed $75,000 which is approximately 0.5% of the
value of the 40% Guaranteed Amount or approximately 0.49% of the value of the
38% Guaranteed Amount (without calculating the upside potential for the Debtor),
both percentages that are well within the range of those that have been accepted
by this and other courts.(7) See, e.g., Doehring v. Crown Corp. (In re Crown
Corp.), 679 F.2d 774 (9th Cir. 1982) (4.9% fee). Accordingly, the
- --------------
(7) In the event that the Debtor chooses to conduct GOB Sales at 43 Stores,
the Break-up Fee under the Agency Agreement shall be reduced to $50,000.
- 17 -
<PAGE> 18
Debtor believes that there is ample support for the Court to approve the
Break-up Fee.
NO PREVIOUS REQUEST
34. No previous request for the relief sought in this Motion
has been made to this or any other Court.
WHEREFORE, the Debtor respectfully requests the Court to
enter an order:
A. Approving the Debtor's plan to discontinue operations at
the Stores;
B. Authorizing the Debtor to conduct "going-out-of-business"
sales at the Stores and to sell all furniture, fixtures and equipment free and
clear of liens;
C. Exempting the Sales from state and local regulatory laws
and lease provisions with which the Debtor might otherwise be required to
comply;
D. Authorizing the Debtor to enter into an agency agreement
with a joint venture consisting of The Ozer Group LLC, Schottenstein Bernstein
Capital Group, Inc. and Gordon Brothers Retail Partners, LLC;
E. Authorizing the conduct of an auction; and
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<PAGE> 19
F. Approving certain notice and bidding procedures, including
bid protection and a break-up fee.
YOUNG CONAWAY STARGATT & TAYLOR, LLP
/s/ JAMES L. PATTON
------------------------------------------
James L. Patton, Jr. (No. 2202)
S. David Peress (No. 2679)
Brendan Linehan Shannon (No. 3136)
Michael R. Nestor (No. 3526)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
Counsel to Debtors and Debtors-in-Possession
Dated: July 22, 1998
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<PAGE> 1
EXHIBIT 99.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
CROWN BOOKS CORPORATION, )
SUPER CROWN BOOKS CORPORATION, ) Case No. 98-1575 (RRM)
CROWN BOOKS EAST CORPORATION, )
CROWN BOOKS WEST CORPORATION, )
CROWN BOOKS NATIONAL CORPORATION, ) (Jointly Administered)
and CROWN DHC CORPORATION, )
)
Debtors. )
ORDER PURSUANT TO SECTIONS 363 AND 105(a) OF THE
BANKRUPTCY CODE (a) APPROVING STORE CLOSINGS,
(b) AUTHORIZING "GOING-OUT-OF-BUSINESS" SALES AT
CERTAIN LOCATIONS, THE SALE OF PROPERTY OF THE
ESTATE AND THE SALE OF PROPERTY FREE AND CLEAR
OF ALL LIENS AND (c) APPROVING THE AGENCY AGREEMENT
Upon consideration of the motion dated July 22, 1998 (the
"Motion") of Crown Books Corporation, one of the above-captioned debtors and
debtors-in-possession ("Crown" or the "Debtor"), for an order, pursuant to
sections 363 and 105(a) of title 11 of the United States Code (the "Bankruptcy
Code") (i) approving the Debtor's discontinua tion of operations at certain of
its retail stores (the "Closing Stores"), (ii) authorizing the Debtor to retain
a liquidator to conduct "going-out-of business," "store closing," and/or "total
liquidation" sales ("GOB Sales"), including authorization to sell the
Merchandise (as defined in the Agency Agreement described below) free and clear
of all liens, claims and encumbrances and to be exempted from state and local
regulatory laws and provisions in the leases with which the Debtor might
otherwise be required to comply, and
<PAGE> 2
(iii) approving that certain agency agreement annexed hereto as Exhibit A (the
"Agency Agreement") by and between the Debtor, as seller, and a joint venture
composed of Schottenstein Bernstein Capital Group, LLC, Gordon Brother Retail
Partners and the OZER Group, LLC as agent (the "Agent"), providing for, inter
alia, the conduct of the GOB Sales pursuant to the terms and conditions set
forth in the agency agreement; and the Court having jurisdiction over this
matter pursuant to 28 U.S.C. Section Section 157 and 1334; and this being a core
proceeding pursuant to 28 U.S.C. Section 157(b)(2); and notice of the Motion
having been provided to (i) the Office of the United States Trustee, (ii)
counsel for the Official Committee of Unsecured Creditors, (iii) counsel for
Paragon Capital, LLC and Foothill Capital Corporation, each of the Debtor's
post-petition lenders (the "Lenders"), (iv) the affected state, county and local
governmental authorities, (v) each of the lessors of premises leased by the
Debtor in which the GOB Sales will be conducted, and (vi) all other parties who
have filed a notice of appearance in this chapter 11 case; and the Court having
found as follows:
A. The closing of the Closing Stores is in the best interests of
the Debtor's estate.
B. The retention of the Agent in connection with the store
closings is in the best interests of the Debtor, its estate and its creditors.
C. The conduct of GOB Sales at the Closing Stores listed on
Exhibit A to the Agency Agreement (the "GOB Stores") will provide efficient
means for the Debtor to dispose of Merchandise at those stores.
D. The transactions provided for in the Agency Agreement between
the Debtor and the Agent are in the best interests of the Debtor, its estate and
its creditors.
- 2 -
<PAGE> 3
E. The bidding procedures for the consideration of bids for the
transactions provided for in the Agency Agreement were appropriate and
reasonable in all respects.
F. After such competitive bidding, it was determined that the
Agent made the highest and best offer, and was selected by the Debtor to serve
as the Agent, pursuant to the terms of the Agency Agreement.
G. The OZER Group, LLC is an affiliate of Paragon Capital, LLC,
one of the Debtor's above-described Lenders.
H. The Agent and the Debtor have acted in good faith within the
meaning of section 363(m) of the Bankruptcy Code, and any credit extended to the
Debtor or obligations of the Debtor or Agent incurred under the Agency Agreement
have been extended, incurred or made, as the case may be, in "good faith" within
the meaning of section 364(e) of the Bankruptcy Code.
NOW, THEREFORE, it is hereby ORDERED as follows:
1. Pursuant to sections 363 and 105(a) of the Bankruptcy Code the
Debtor is hereby authorized to discontinue operations at the Closing Stores.
2. The Debtor is hereby authorized to enter into and perform all
of its obligations under the Agency Agreement, which Agency Agreement was
negotiated and entered into in good faith within the meaning of section 363(m)
of the Bankruptcy Code
and is hereby approved.
3. The Debtor and/or the Agent shall be entitled to occupy the
GOB Stores for the purpose of conducting the GOB Sales through and including
November 22, 1998.
- 3 -
<PAGE> 4
4. The Agent is hereby authorized to sell the Merchandise and to
conduct the GOB Sales at the GOB Stores subject to and in accordance with the
provisions of the Agency Agreement, and the Sale Procedures annexed hereto as
Exhibit B and take all actions reasonably related thereto or arising in
connection therewith, including, without limitation, advertising the Sales as
"store closing sales" or "going out of business sales" in media advertisements,
and on interior and exterior banners and other signage that Agent deems
appropriate, notwithstanding any restrictive provision of any lease or related
documents purporting to limit such actions, and section 365(d)(3) of the
Bankruptcy Code does not preclude the relief granted in this paragraph.
5. Except as set forth in this paragraph, this Order shall not
authorize the Debtor or the Agent to conduct the GOB Sales at Stores No. 171,
169, 430, 431, 463, 574 and 799 (collectively referred to hereinafter as the
"Objecting Stores"), and a hearing to consider the entry of an Order regarding
the Objecting Stores will be held in this Court on August 20, 1998 at 3:30 p.m.;
provided, however, that the Debtor and the Agent hereby are and shall be
authorized to conduct GOB Sales at any of the Objecting Stores, without further
Order of the Court, in the event that the objections of a landlord of any
Objecting Store are settled, withdrawn or otherwise resolved.
6. The Agent shall have the right to use the Closing Stores and
all furniture, fixtures and equipment in such stores. Pursuant to, and as
required by section 365(d)(3) of the Bankruptcy Code, the Agent shall pay
post-petition rents and related lease obligations.
7. Pursuant to section 363(f) of the Bankruptcy Code, the
Merchandise to be sold shall be sold and transferred free and clear of all
liens, claims,
- 4 -
<PAGE> 5
rights, interests and encumbrances thereon in accordance with the terms and
conditions set forth herein. In consideration thereof, all amounts payable by
Agent to the Debtor under the Agency Agreement and including without limitation
the "Guaranteed Amount" (as defined in the Agency Agreement), shall be paid to
the Lenders in partial satisfaction of the Debtor's obligations under its
post-petition financing facility.
8. Consistent with the terms of the Agency Agreement, the Debtor
and/or the Agent shall be and hereby are authorized to transfer Merchandise
between and among the GOB Stores.
9. Effective upon payment by Agent to Debtor of 54% of the
Guaranteed Amount (as defined in the Agency Agreement) based upon the agreed
upon value of the Merchandise one business day following entry of this Order, as
security for obligations of the Debtor to Agent under the Agency Agreement,
Agent shall have and is by this Order granted (effective upon the date of this
Order and without the necessity of the execution by Agent of security
agreements, pledge agreements, financing statements or otherwise) valid and
perfected first priority security interests and liens (collectively, the
"Liens") on all of the Merchandise, wherever located, and any proceeds, products
or profits thereof, to secure the payment of amounts due or that become due and
any other obligations of the Debtor to Agent under the Agency Agreement;
provided, however, that the Lenders shall retain their liens on the Merchandise
until it is sold and such liens shall be subordinate to the Liens of Agent
granted hereby.
10. The provisions of this Order shall be self-executing and each
and every federal, state or local agency, department or governmental authority
and all news papers and other advertising media and each and every landlord is
hereby directed to
- 5 -
<PAGE> 6
accept this Order as binding authority to consummate the transactions set forth
in the Agency Agreement, including, without limitation, the GOB Sales, and no
other or further approval, consent, permit, license, record keeping and the like
of any such federal, state or local agency, department or governmental authority
or landlord under any lease is required to effectuate, consummate and implement
the transactions set forth in the Motion and the Agency Agreement, including the
GOB Sales.
11. All parties and persons of every nature and description,
including but not limited to landlords, utility companies, governmental
agencies, sheriffs, marshals or other public officers, creditors and all those
acting for or on their behalf are hereby jointly and severally restrained from
(a) in any way interfering with or otherwise imped ing the conduct of the GOB
Sales at the Closing Stores and the maintenance of the inven tory, equipment,
furniture and fixtures thereat, (b) instituting any action or proceeding in any
court or other administrative body having as its objective the obtaining of an
order or judgment which might in any way directly or indirectly obstruct or
otherwise interfere with or adversely affect the conduct of GOB Sales and (c)
taking any action that interferes with or impedes the Agent's receipt of all
sums due to the Agent in accordance with the terms of the Agency Agreement and
this Order; provided, however, that nothing in this Order shall prohibit any
landlord from seeking relief in this Court to enforce the provisions of its
lease.
12. The Court shall retain jurisdiction over any and all
disputes arising under or otherwise relating to the construction, performance
and enforcement of the terms and provisions of this Order and the Agency
Agreement.
13. The Agency Agreement is approved and the terms of this Order
- 6 -
<PAGE> 7
and the Agency Agreement shall be binding upon the Debtor, the Debtor's estate
and creditors, and any successors of the Debtor, including any trustee or
examiner appointed in this case or any subsequent case of the Debtor under
chapter 7 or chapter 11 of the Bankruptcy Code.
14. The Debtor, the Agent and their respective officers,
employees and agents be, and they hereby are, authorized to execute such
documents and to do such acts as are necessary or desirable to carry out the GOB
Sales and the related actions authorized herein.
15. The Agent shall not be liable for any claims against the
Debtor and the Agent shall have no successor liability other than as provided
for in the Agency Agreement.
Dated: Wilmington Delaware
August 20, 1998
/s/ RODERICK R. MCKELVIE
---------------------------------
Roderick R. McKelvie
United States District Judge
- 7 -
<PAGE> 1
EXHIBIT 99.3
AGENCY AGREEMENT
This Agency Agreement is made as of this 12th day of August, 1998, by
and between a joint venture composed of Schottenstein Bernstein Capital Group,
LLC, Gordon Brothers Retail Partners, LLC and the OZER Group, LLC (the "Agent")
and Crown Books Corporation (the "Merchant").
RECITALS
WHEREAS, Merchant is a debtor and debtor in possession under chapter 11
of the United States Bankruptcy Code, in Chapter 11 case no. 98-1575 (RRM) in
the United States Bankruptcy Court for the District of Delaware (the "Court"),
and
WHEREAS, Merchant desires that Agent act as Merchant's exclusive agent
for the limited purpose of selling all of the Merchandise (as hereinafter
defined) located in Merchant's retail store location(s) set forth on Exhibit A
attached hereto (the "Stores") by means of a Court authorized store closing or
going-out-of-business sale at the Stores (as further described below, the
"Sale").
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Agent and Merchant hereby agree as
follows:
Section 1. Defined Terms. The terms set forth below are defined in the
Sections referenced of this Agreement:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Agency Accounts Section 7.2
Agency Documents Section 11. 1 (b)
Agent Preamble
Agent Claim Section 12.5
Agent Indemnified Parties Section 13.1
Bankruptcy Code Recitals
Base Retail Price Section 5.3
Central Service Expenses Section 4.1
Court Recitals
Defective Merchandise Section 5.2(b)
Excluded Benefits Section 4.1
FF&E Section 5.2(a)
Guaranteed Amount Section 3. 1 (a)
Gross Rings Section 6.3
Inventory Date Section 5.1
Inventory Taking Section 5.1
Letter of Credit Section 3.5
Merchandise Section 5.2(a)
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Merchandise Threshold Section 3.1 (b)
Merchant Preamble
Occupancy Expenses Section 4.1
Order Section 10(a)
Out of Season Merchandise Section 5.2(b)
Proceeds Section 7.1
Retail Price Section 5.3
Retained Employee Section 9.1
Retention Bonus Section 9.4
Return Credit Section 5.5
Return Goods Section 5.5
Returned Merchandise Section 8.5
Sale Recitals
Sale Expenses Section 4.1
Sale Commencement Date Section 6.1
Sale Term Section 6.1
Sale Termination Date Section 6.1
Sales Taxes Section 8.3
Store(s) Recitals
Value Added Merchandise Section 5.2(b)
Warehouse Recitals
WARN Act Section 9.1
</TABLE>
Section 2. Appointment of Agent. Merchant hereby irrevocably appoints
Agent, and Agent hereby agrees to serve, as Merchant's exclusive agent for the
limited purpose of conducting the Sale in accordance with the terms and
conditions of this Agreement.
Section 3. Payments to Merchant and Agent.
3.1 Payments to Merchant
(a) As a guaranty of Agent's performance hereunder, Merchant
shall receive from Agent the sum of 45.15% of the aggregate Retail Price of the
Merchandise less the Return Credit (the "Guaranteed Amount").
(b) The Guaranteed Amount has been calculated and agreed upon
based upon Merchant's representation that the aggregate Retail Price of the
Merchandise as of the Sale Commencement Date will not be less than $25 million
(the "Merchandise Threshold"), that all such Merchandise will conform to
Merchant's representations and warranties contained herein, and that no
representations, warranties or covenants of Merchant hereunder have been
breached. Merchant and Agent agree that in the event that the final report of
the inventory taking service indicates that the Retail Price of Merchandise is
less than the Merchandise Threshold, then the percentage on which the Guaranteed
Amount is based shall be reduced by .25 for each $500,000 shortfall below the
Merchandise Threshold (prorated for each partial $500,000 increment); provided,
2
<PAGE> 3
however, under no circumstances will the aggregate Retail Price of the
Merchandise be less than $22 million.
Compensation to Agent. Agent shall receive as its
compensation for services rendered to Merchant the sum of $80,000 plus all
remaining Proceeds after payment of Sale Expenses, the Guaranteed Amount and all
other amounts payable to Merchant from Proceeds hereunder.
3.2 [Intentionally Omitted]
3.3 Time of Payments
(a) Agent shall pay to Merchant 54% of the estimated
Guaranteed Amount attributable to Merchandise in the Stores as of the Sale
Commencement Date within one business day after issuance of the Approval Order,
which amount shall be calculated based upon the net book value of such
Merchandise as of such date as set forth in Merchant's books and records.
(b) Following reconciliation by Merchant and Agent of the
final inventory report by the inventory taking service, Merchant and Agent shall
cooperate in good faith to calculate the maximum Return Credit which could be
due to Agent pursuant to Section 5.5 below (the "Maximum Return Credit").
Thereafter, within two (2) business days following the parties' agreement upon
the Maximum Return Credit, the Agent shall pay to Merchant, by wire transfer of
immediately available funds, an amount equal to the remaining Guaranteed Amount,
less the agreed upon Maximum Return Credit. In the event that the initial
payment on account of the Guaranteed Amount is greater than the Guaranteed
Amount less the Maximum Return Credit, Merchant shall immediately repay such
amount to Agent or Agent shall be entitled to offset such amount from amounts
otherwise due to Merchant hereunder.
(c) If at any point during the Sale the Agent has sold
through so much of the Merchandise that the Maximum Return Credit calculated
pursuant to this Section 3.3 may no longer be realized pursuant to Section 5.5
below, the Agent shall commence to pay to Merchant, on a weekly basis, the
portion of the Guaranteed Amount attributable to such Merchandise sold during
the previous week and for which a Return Credit may not and cannot be realized
(without duplication for any amounts paid on amount of the initial installment
of the Guaranteed Amount)
(d) Subject to Agent's exercise of its rights under Section
5.5 below to return certain Merchandise to Merchant, Agent shall pay to Merchant
the unpaid balance of the Guaranteed Amount on or before the end of the Sale
Term.
3.4 Security. To secure payment of the portion of the
Guaranteed Amount which may become payable under Section 3.3(c), Agent shall
deliver to Merchant an irrevocable standby letter of credit in original face
amount equal to the sum of the Maximum Return Credit calculated pursuant to
Section 5.5 below, which shall name Merchant as beneficiary (the "Letter of
Credit"). The Letter of Credit shall be
3
<PAGE> 4
delivered concurrently with payment of the second installment of the Guaranteed
Amount pursuant to Section 3.3(b) above, shall be issued by a bank selected by
Agent and reasonably acceptable to Merchant, and shall contain terms, provisions
and conditions mutually acceptable to Agent and Merchant. In the event that
Agent shall fail to pay Merchant any portion of the Guaranteed Amount payable
under Section 3.3(c) and (d), Merchant shall be entitled to draw on the Letter
of Credit to fund such amount following five (5) days written notice to Agent of
Merchant's intention to do so, provided that no material default has then
occurred on the part of the Merchant hereunder. The Letter of Credit shall
expire on January 15, 1999 provided that in the event that Agent shall have paid
the Guaranteed Amount in full prior to such date, Merchant agrees to surrender
the original Letter of Credit to the issuer thereof together with written
notification that the Letter of Credit may be terminated. Merchant and Agent
agree that the face amount of the Letter of Credit shall be reduced an a dollar
for dollar basis to the extent Agent makes payments to Merchant pursuant Section
3.3(c) above.
Section 4. Expenses of the Sale.
4.1 Sale Expenses. Agent shall be responsible for the payment or
reimbursement of all Sale Expenses incurred in conducting the Sale. As used
herein, "Sale Expenses" shall mean Store-level operating expenses of the Sale
which arise during the Sale Term at the Stores, limited to the following: (a)
base payroll for Retained Employees for actual days/hours worked in the conduct
of the Sale; (b) amounts actually payable in respect of payroll taxes, FICA,
unemployment taxes, health care insurance benefits, worker's compensation and
benefits of Retained Employees (other than Excluded Benefits), with such amounts
being limited to no more than 14% of base payroll for each Retained Employee;
(c) 50% of the fees and costs of the inventory taking service to conduct the
Inventory Taking; (d) on-site supervision including Agent's Sale supervisors'
fees, bonuses and travel expenses; (e) advertising and signage (at Merchant's
contract rates, if available); (f) telephone charges incurred in the conduct of
the Sale; (g) credit card and bank card fees, chargebacks and discounts; (h)
costs of outside security personnel and armored car service; (i) Retention
Bonuses as described in Section 9.4 below; (j) check verification fees and bad
check charges if Agent elects to accept checks during the Sale; (k) Agent's
actual cost of capital, (1) costs of transfers of Merchandise during the Sale
Term, including, without limitation costs of transfer of Return Goods in
connection with Agent's exercise of its rights under section 5.5 hereof; (m)
Occupancy Expenses, on a per diem, per Store basis, limited to the amounts set
forth on Exhibit 4.1 hereto; (n) Agent's travel expenses; and (o) the actual
costs and expenses of providing such additional services which Agent in its
reasonable discretion deems appropriate.
"Sale Expenses" shall not include: (i) Excluded Benefits; (ii) any
expenses relating to the occupancy of the Stores other than the Occupancy
Expenses (iii) Central Service Expenses; and (iii) any other costs, expenses or
liabilities payable by Merchant, all of which shall be paid by Merchant promptly
when due for and during the Sale Term.
As used herein, the following terms have the following respective
meanings:
4
<PAGE> 5
"Occupancy Expenses" means base rent, percentage rent,, building
insurance relating to the Stores, utilities, HVAC usage, CAM, real estate and
use taxes and Merchant's association dues.
"Central Service Expenses" means costs and expenses for Merchant's
central administrative services necessary for the Sale, including, but not
limited to, POS administration, MIS services, corporate communication to and
from the Stores, sales audit, cash reconciliation, ADP and payroll processing,
inventory processing and handling and data processing and reporting all of which
Merchant shall continue to provide to the Stores throughout the Safe Term.
"Excluded Benefits" means vacation days or vacation pay, holiday pay,
sick days or sick leave, maternity leave or other leaves of absence, WARN Act,
termination or severance pay, pension benefits, ERISA coverage and similar
contributions, and payroll taxes, worker's compensation and benefits in excess
of the percentage limitation provided in Section 4.1 (b) above.
4.2 Payment of Sale Expenses. All Sale Expenses shall be paid by
Agent to or on behalf of Merchant by each Wednesday for the prior week's (i.e.
Sunday through Saturday) Sale Expenses or when such Sale Expenses become due in
the ordinary course of business.
Section 5. Inventory Valuation; Merchandise.
5.1 Inventory Taking, Merchant and Agent shall cause to be taken a
Retail Price and SKU physical inventory of the Merchandise (the "Inventory
Taking") at the Stores on a date mutually agreed upon by Agent and Merchant, but
no later than August 28, 1998 (the date of the Inventory Taking at each Store
being the "Inventory Date" for such Store). Merchant and Agent shall jointly
employ Washington inventory Service or another mutually acceptable inventory
taking service to conduct the Inventory Taking. Agent shall be responsible for
50% of the costs and fees of the inventory taking service as a Sale Expense
hereunder, and the balance of such fees and expenses shall be paid by Merchant.
Except as provided in the immediately preceding sentence, Merchant and Agent
shall each bear their respective costs and expenses relative to the Inventory
Taking, Merchant and Agent shall each have representatives present during the
Inventory Taking, and shall each have the right to review and verify the listing
and tabulation of the inventory taking service. Merchant agrees that during the
conduct of the Inventory Taking at each Store such Store shall be closed to the
public and no sales or other transactions shall be conducted. Prior to the
Inventory Taking, Merchant and Agent shall agree upon mutually acceptable
inventory taking procedures. In order to facilitate the Inventory Taking,
Merchant agrees to make its SKU data files and related computer hardware and
software available to Agent and the inventory taking service prior to the
Inventory Date.
5.2 Merchandise Subject to this Agreement
5
<PAGE> 6
(a) For purposes of this Agreement, "Merchandise" shall mean:
(i) all first quality finished goods inventory that is owned by Merchant and
located at the Stores as of the Sale Commencement Date including: (A) Defective
Merchandise for which Merchant and Agent agree on a Retail Price; (B)
Merchandise subject to Gross Rings; and (C) Out of Season Merchandise.
Notwithstanding the foregoing, "Merchandise" shall not include: (1) goods which
belong to sublesees, licensees or concessionaires of Merchant; (2) goods held by
Merchant on memo, on consignment, or as bailee; (3) Defective Merchandise for
which Merchant and Agent cannot agree upon a Retail Price; (4) Value Added
Merchandise and (5) equipment, furnishings, trade fixtures and improvements to
real property which are located in the Stores or the Warehouses (collectively,
"FF&E").
(b) As used in this Agreement, the following terms have the
respective meanings set forth below:
"Defective Merchandise" means Merchandise that is damaged, dated, near
date, defective or otherwise not salable in the ordinary course because it or
its packaging is dented, worn, scratched, broken, faded, torn, or affected with
defects rendering it not first quality and thus not saleable in the ordinary
course.
"Value Added Merchandise" means items of Merchandise which (i) must be
processed with specialized machinery or equipment or (ii) require the
application of labor in order to make the item salable in the ordinary course.
"Out of Season Merchandise" means Merchandise relating to holidays or
seasons falling outside of the Sale Term.
5.3 Valuation. For purposes of this Agreement, "Retail Price" shall
mean for each item of Merchandise the lowest price offered to the public by
Merchant at the Stores by any and all means as of the Sale Commencement Date
(the "Base Retail Price") except for:
(i) Defective Merchandise and Out of Season Merchandise, where
"Retail Price" shall mean such value as to which Agent and Merchant shall
mutually agree or such Defective Merchandise or Out of Season Merchandise shall
be excluded from the Sale; and
(ii) greeting cards, where "Retail Price" shall mean the lower of
(a) 50% off the original retail price, or (b) the Base Retail Price.
The Retail Price of any item of Merchandise shall exclude all Sales
Taxes, and Merchant represents that the ticketed prices of items of Merchandise
at the Stores do not and shall not include any Sales Taxes. If an item of
Merchandise has more than one Base Retail Price, or if multiple items of the
same SKU are marked at different prices, the lowest Base Retail Price on any
such item shall prevail for such item or for all such items within the same SKU,
as the case may be, unless it is clear that the Base Retail Price was mismarked
and infrequent.
6
<PAGE> 7
5.4 Excluded Goods. Merchant shall retain all responsibility for
any goods not included as "Merchandise" hereunder.
5.5 Return Credit. At any time after forty-five (45) days from the
Sale Commencement Date and prior to the date seven (7) days after the end of
the Sale Term, Agent shall have the right, in its sole discretion, to return to
Merchant Merchandise constituting books having an aggregate Retail Price of up
to 35% of the aggregate Retail Price of all of the Merchandise on the Sale
Commencement Date ("Return Goods"); provided, however, that in the event the
Agent terminates the Sale at any Store prior to the 45th day from the Sale
Commencement Date, the Agent may exercise its right to return the Return Goods
at such Store. Agent shall deliver all such Return Goods to Merchant within ten
(10) days after making an election under this Section 5.5, to such location as
Merchant shall reasonably direct, at Agent's sole expense (including, without
limitation, costs of labor, supplies, and freight and insurance). Merchant and
Agent shall define mutually agreeable procedures to determine the Retail Price
of all Return Goods (which procedures may include the taking of a physical
inventory by a professional inventory taking service). Upon determination of the
Retail Price of all Return Goods and completion of delivery to Merchant, Agent
shall be entitled to a cash credit against the unpaid portion of the Guaranteed
Amount in an amount equal to 53% of the Retail Price of the Return Goods (such
amount being the "Return Credit" and such amount being based upon Merchant's
representations that this translates into approximately 77% of cost for the
Return Goods).
Section 6. Sale Term.
6.1 Term. Subject to satisfaction of the conditions precedent set
forth in Section 10 hereof, the Sale shall commence at each Store no later than
August 21, 1998 ("Sale Commencement Date"). Agent shall complete the Sale on or
before November 22, 1998, unless the Sale is extended by mutual written
agreement of Agent and Merchant (the "Sale Termination Date"; the period from
the Sale Commencement Date to the Sale Termination Date as to each Store being
the "Sale Term"). Agent may, in its discretion, terminate the Sale at any Store
at any time within the Sale Term (i) upon the occurrence of an Event of Default
by Merchant, which Merchant fails to timely cure or (ii) upon not less than five
(5) business days' prior written notice to Merchant. In the event that Agent is
unable to operate the Sale in Stores 996 and 725 beyond August 31, 1998, Agent
may, at its option, substitute Store 799 for Stores 996 and 725 prior to the
Sale Commencement Date.
6.2 Vacating the Stores. Agent shall vacate the Stores on or before
the Sale Termination Date, at which time Agent shall surrender and deliver the
Store premises and Store keys to Merchant. Agent agrees to leave the Stores in
"broom clean" condition, ordinary wear and tear excepted. All assets of Merchant
used by Agent in the conduct of the Sale (e.g. FF&E, supplies, etc.) shall be
returned by Agent to Merchant at the end of the Sale Term to the extent the same
have not been used in the conduct of the Sale or have not been otherwise
disposed of hereunder or through no fault of Agent.
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6.3 Gross Rings. In the event that the Sale commences at any Store
prior to the completion of the Inventory Taking at such Store, then for the
period from the Sale Commencement Date until the Inventory Date for such Store,
Agent and Merchant shall jointly keep (i) a strict count of gross register
receipts less applicable Sales Taxes ("Gross Rings"), and (ii) cash reports of
sales within such Store. Register receipts shall show for each item sold the
Retail Price for such item and the markdown or discount, if any, specifically
granted by Agent in connection with such Sale. All such records and reports
shall be made available to Agent and Merchant during regular business hours upon
reasonable notice.
Section 7. Sale Proceeds.
7.1 Proceeds. For purposes of this Agreement, "Proceeds" shall mean
the aggregate of (a) the total amount of all sales of Merchandise made under
this Agreement, exclusive of Sales Taxes, and (b) all proceeds of Merchant's
insurance for loss or damage to Merchandise or loss of cash which would
otherwise constitute Proceeds as defined under this Agreement, arising from
events occurring during the Sale Term.
7.2 Deposit of Proceeds. All cash Proceeds shall be deposited by
Agent in Agency Accounts established by Agent ("Agency Accounts"). Agent may in
its discretion designate new or existing accounts of Agent or Merchant as the
Agency Accounts, provided that such accounts are dedicated solely to the deposit
of Proceeds and the disbursement of Sale Expenses and amounts payable to
Merchant pursuant to Section 3 hereof and shall be subject to the lien in favor
of Agent granted pursuant to Section 15 below. Agent shall exercise sole
signatory authority and control with respect to the Agency Accounts. Merchant
shall promptly upon Agent's request execute and deliver all necessary documents
to open and maintain the Agency Accounts.
7.3 Credit Card Proceeds. Agent shall have the right (but not the
obligation) to use Merchant's credit card facilities (including Merchant's
credit card terminals and processor(s), credit card processor coding, merchant
identification numbers and existing bank accounts) for credit card Proceeds. In
the event that Agent elects so to use Merchant's credit card facilities,
Merchant shall process credit card transactions on behalf of Agent, applying
customary practices and procedures. Without limiting the foregoing, Merchant
shall cooperate with Agent to down-load data from all credit card terminals
each day during the Sale Term and to effect settlement with Merchant's credit
card processor(s), and shall take such other actions necessary to process
credit card transactions under Merchant's merchant identification numbers. All
credit card Proceeds will constitute the property of Agent and shall be held by
Merchant, In Trust. for Agent, free and clear of all liens, claims or
encumbrances of Merchant or its creditors. Merchant shall deposit all credit
card Proceeds into a segregated designated account and shall transfer such
Proceeds to Agent daily (on the date received by Merchant if received prior to
12:00 noon, or otherwise within one (1) business day) by wire transfer of
immediately available funds. At Agent's request, Merchant shall cooperate with
Agent to establish merchant identification numbers under Agent's name and to
process all credit card
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Proceeds for Agent's account- Merchant shall not be responsible for and
Agent shall pay as an Expense hereunder, all credit card fees, charges, and
chargebacks related to the Sale, whether received during or after the Sale Term.
Section 8. Conduct of the Sale.
8.1 Rights of Agent. Agent shall be permitted to, in its sole
discretion, conduct the Sale as a "store closing" sale in markets in which
Merchant shall continue to operate stores and a "going-out-of-business" sale in
markets in which Merchant is vacating entirely throughout the Sale Term, The
Sale shall be considered implemented by Merchant pursuant to section 363 of the
Bankruptcy Code, with all of the protections afforded by section 363(m) of the
Bankruptcy Code. Agent shall conduct the Sale in the name of and on behalf of
Merchant in a commercially reasonable manner and in compliance with the terms of
this Agreement. In addition to any other rights granted to Agent hereunder, in
conducting the Sale Agent, in the exercise of its sole discretion, shall have
the right:
(a) to establish and implement advertising and promotion
programs consistent with a "going-out-of-business,' or "store closing" theme
sale (including, without limitation, by means of media advertising, exterior
banners, A-frame, and similar interior and exterior signs),
(b) to establish Sale prices and Store hours which are
consistent with the terms of applicable leases,
(c) to use without charge during the Sale Term and in
conjunction with Agent's exercise of its rights under section 5.5, all FF&E,
motor vehicles, advertising materials, bank accounts, Store-level customer lists
and mailing lists, computer hardware and software, existing supplies located at
the Stores, intangible assets (including Merchant's name, logo and tax
identification numbers), Store keys, case keys, security codes, and safe and
lock combinations required to gain access to and operate the Stores, and any
other assets of Merchant located at the Stores or used in the ordinary course of
business at the Stores (whether owned, leased, or licensed),
(d) to transfer Merchandise between Stores, and
(e) to use without charge during the Sale Term (i)
Merchant's central office facilities, central administrative services and
personnel to process payroll, perform MIS and provide other central office
services necessary for the Sale, and (ii) one (1) office located at Merchant's
central office facility.
8.2 Terms of Sales to Customers. All sales of Merchandise will
be "final sales" and "as is," and all advertisements and sales receipts will
reflect the same. Agent shall not warrant the Merchandise in any manner, but
will, to the extent legally permissible, pass on all manufacturer's warranties
to customers. All sales will be made only for cash and by nationally recognized
bank credit cards. Agent will not accept
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Merchant's gift certificates, Store credits, due bills and rain checks issued by
Merchant prior to the Sale Commencement Date, unless otherwise directed by
Merchant. To the extent Merchant directs Agent to accept Merchant's gift
certificates, Store credits, due bills and rain checks, Merchant shall reimburse
Agent in cash on a weekly basis for any such amounts or Agent shall setoff such
amounts against other amounts due Merchant hereunder.
8.3 Sales Taxes. During the Sale Term, all sales, excise, gross
receipts and other taxes attributable to sales of merchandise (other than taxes
on income) payable to any taxing authority having jurisdiction (collectively,
"Sales Taxes") shall be added to the sales price of Merchandise and collected by
Agent at the time of sale. Agent shall collect Sales Taxes based on amount
computed by Merchant's POS system. Agent shall deliver collected sales taxes to
Merchant, In Trust, on a timely basis for payment by Merchant of Sales Taxes at
least five days prior to the date such Sales Taxes are due. Merchant shall
promptly pay all Sales Taxes and file all applicable reports and documents
required by the applicable taxing authorities and Agent shall have no liability
for such taxes, to the extent of the Sales Taxes collected by Agent and
delivered to Merchant. Merchant will be given access to the computation of gross
receipts for verification of all such tax collections.
8.4 Supplies. Agent shall have the right to use all existing
supplies (e.g, boxes, bags, twine) located at the Stores at no charge to Agent.
In the event that additional supplies are required in any of the Stores during
the Sale, Merchant agrees to promptly provide the same to Agent, if available,
for which Agent shall reimburse Merchant at Merchant's cost therefor. Supplies
have not been since April 1, 1998, and shall not be prior to the Sale
Commencement Date, transferred by Merchant between or from the Stores, so as to
alter the mix or quantity of supplies at the Stores from that existing on such
date, other than in the ordinary course of business.
8.5 Returns Of Merchandise. During the Sale Term Agent shall not
accept returns of merchandise sold by Merchant from the Stores prior to the Sale
Commencement Date, unless otherwise directed by Merchant. To the extent Merchant
directs Agent to accept returns of merchandise, then any such returned
merchandise that is saleable as first-quality merchandise shall be included in
Merchandise, returned to the sales floor, and valued at the Retail Price
applicable to such item multiplied by the complement of the prevailing Sale
discount at the time of the return. If such returned Merchandise constitutes
Defective Merchandise, it shall be included in Merchandise and assigned a Retail
Price in accordance with the applicable provisions of Section 5.3 above. The
aggregate Retail Price of the Merchandise shall be increased by the Retail Price
of any returned Merchandise included in Merchandise (determined in accordance
with this Section 8.5), and the Guaranteed Amount shall be adjusted accordingly,
To the extent that Agent is required to issue refunds to customers in respect of
any returned Merchandise, Merchant shall reimburse Agent in cash for any such
amounts or Agent shall setoff such amounts against other amounts due Merchant
hereunder. Any returned Merchandise not included in Merchandise shall be
disposed of by Agent in accordance with instructions received from Merchant or,
in the absence of such instructions, returned to Merchant at the end of the Sale
Term. Any increases in the Guaranteed Amount in connection with
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returned Merchandise shall be accounted for and paid by Agent on a weekly basis.
8.6 Sale Reconciliation. On each Wednesday during the Sale Term
(for the previous week ending Saturday), commencing on the second Wednesday
after the Sale Commencement Date, Agent and Merchant shall cooperate to
reconcile Sale Expenses, Gross Rings, if still applicable, and such other Sale
related items as either party shall reasonably request, in each case for the
prior week or partial week (i.e. Sunday through Saturday), all pursuant to
procedures agreed upon by Merchant and Agent. Within thirty (30) days after the
end of the Sale Term, Agent and Merchant shall complete a final reconciliation
of the Sale Expenses, the written results of which shall be certified by
representations of each of Merchant and Agent as a final settlement of accounts
between Merchant and Agent.
8.7 Force Majeure. If any casualty or act of God prevents or
substantially inhibits the conduct of business in the ordinary course at any
Store, such Store and the Merchandise located at such Store shall be eliminated
from the Sale and considered to be deleted from this Agreement as of the date of
such event, and Agent and Merchant shall have no further rights or obligations
hereunder with respect thereto; provided, however, that (i) the proceeds of any
insurance attributable to such Merchandise or business interruption shall
constitute Proceeds hereunder, and (ii) the Guaranteed Amount shall be reduced
to account for any Merchandise eliminated from the Sale which is not the subject
of insurance proceeds, and Merchant shall reimburse Agent for the amount the
Guaranteed Amount is so reduced prior to the end of the Sale Term.
8.8 Petty Cash, Etc. All petty cash funds, register funds,
unprocessed checks and credit card media (including proceeds of sales of goods)
relating to periods prior to the Sale Commencement Date shall constitute
property of the Merchant, and Agent shall have no rights or claims with respect
thereto. Agent shall purchase from Merchant, on a dollar for dollar basis, all
petty cash funds and register funds in the Stores as of the Sale Commencement
Date.
Section 9. Employee Matters.
9.1 Merchant's Employees. Merchant shall permit all of its employees
at the Stores to be available to Agent for the Sale. Agent may use Merchant's
employees in the conduct of the Sale to the extent Agent in its sole discretion
deems expedient, and Agent may select and schedule the number and type of
Merchant's employees required for the Sale Agent shall identify any such
employees to be used in connection with the Sale (each such employee, a
"Retained Employee") and shall notify Merchant of the identity of all Retained
Employees prior to the Sale Commencement Date. Retained Employees shall at all
times remain employees of Merchant, and shall not be considered or deemed to be
employees of Agent. Merchant and Agent agree that, except to the extent that
wages and benefits of Retained Employees constitute Sale Expenses hereunder,
nothing contained in this Agreement and none of Agent's actions taken in respect
of the Sale shall be deemed to constitute an assumption by Agent of any of
Merchant's obligations relating to any of Merchant's employees including,
without limitation, Excluded Benefits, Worker
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Adjustment Retraining Notification Act ("WARN Act") claims and other termination
type claims and obligations, or any other amounts required to be paid by statute
or law; nor shall Agent become liable under any collective bargaining or
employment agreement or be deemed a joint or successor employer with respect to
such employees. Merchant shall not, without Agent's prior written consent, raise
the salary or wages or increase the benefits for, or pay any bonuses or make any
other extraordinary payments to, any of its employees in anticipation of the
Sale or prior to the Sale Termination Date. Merchant has not terminated and
shall not during the Sale Term terminate any employee benefits or benefit
programs.
9.2 Termination of Employees. Agent may in its discretion stop using
any Retained Employee at any time during the Sale. Agent shall so notify a
representative designated by Merchant at least five business (5) days prior
thereto, except "for cause" (such as dishonesty, fraud or breach of employee
duties), in which event Agent may stop using such employee immediately. Upon the
expiration of the applicable notice period, all costs associated with the
employee shall not be considered a Sale Expense and Agent shall have no further
responsibility or liability for such employees whatsoever. Merchant shall not
transfer or dismiss employees of the Stores without Agent's prior consent, which
shall not be unreasonably withheld, conditioned or delayed, but shall retain the
right to dismiss the employee "for cause".
9.3 Payroll Matters. During the Sale Term Merchant shall process the
base payroll for all Retained Employees. Each Wednesday during the Sale Term
Agent shall transfer from the Agency Accounts to Merchant's payroll accounts an
amount equal to the base payroll for Retained Employees plus related payroll
taxes, worker's compensation and benefits for such week which constitute Sale
Expenses hereunder.
9.4 Employee Retention Bonuses. In Agent's reasonable discretion
Proceeds may be used to pay, as a Sale Expense, retention bonuses ("Retention
Bonuses") (which bonuses shall be inclusive of payroll taxes and workers'
compensation taxes to the extent assessable but as to which no benefits shall be
payable) to Retained Employees who do not voluntarily leave employment and are
not terminated "for cause" provided that if any Retained Employee in any
particular Store is given a Retention Bonus, the Human Resource Representative
in that Store will also be provided a commensurate Retention Bonus. Such
Retention Bonuses shall be payable within thirty (30) days after the Sale
Termination Date, and shall be processed through Merchant's payroll system.
Section 10 Conditions Precedent. The willingness of Agent and Merchant
to enter into the transactions contemplated under this Agreement are directly
conditioned upon the satisfaction of the following conditions at the time or
during the time periods indicated, unless specifically waived in writing by the
applicable party:
(a) The Court shall have entered an Order (which shall not have
been stayed) satisfactory to Agent in form and substance (the "Order"), on or
before August 14, 1998, approving this Agreement in its entirety and authorizing
the Sale pursuant to the terms of this Agreement (i) notwithstanding any state
or local laws or regulations
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otherwise governing or purporting to govern the licensing and conduct of the
Sale, (ii) notwithstanding provisions in leases, reciprocal easement agreements
or other contracts that purport to limit, govern or restrict the Sale, or (iii)
without the necessity of obtaining any third party consents and (iv) granting
Agent a valid perfected and first priority security interest in and lien upon
the Merchandise and the proceeds thereof, as described herein, upon payment of
the initial payment on account of the Guaranteed Amount; provided, however, that
with respect to Store Nos. 169, 171, 431, 430, 463, 574 and 799, the Order shall
be entered on or before August 20, 1998.
(b) All representations and warranties of Merchant and Agent
hereunder shall be true and correct in all material respects and no Event of
Default shall have occurred as of the date hereof and as of the Sale
Commencement Date.
(c) Merchant shall have provided Agent reasonable access to all
pricing and cost files, computer hardware, software and data filed, inter-Store
transfer logs, markdown schedules, invoices, style runs and all other documents
relative to the price, mix and quantities of inventory located at the Stores.
(d) Agent shall have had the opportunity to inspect the Stores
and the inventory on the date immediately preceding the Inventory Date.
Section 11. Representations, Warranties and Covenants.
11.1 Merchant's Representations, Warranties and Covenants. Merchant
hereby represents, warrants and covenants in favor of Agent as follows:
(a) Merchant: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware; (ii) has
all requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as presently conducted; and (iii) is
and during the Sale Term will continue to be duly authorized and qualified as a
foreign corporation to do business and in good standing in each jurisdiction
where the nature of its business or properties requires such qualification,
including all jurisdictions in which the Stores are located.
(b) Subject to the issuance of the Order, Merchant has the
right, power and authority to execute and deliver this Agreement and each other
document and agreement contemplated hereby (collectively, together with this
Agreement, the "Agency Documents") and to perform fully its obligations
thereunder. Merchant has taken all necessary actions required to authorize the
execution, delivery and performance of the Agency Documents, and no further
consent or approval is required for Merchant to enter into and deliver the
Agency Documents, to perform its obligations thereunder, and to consummate the
Sale, except for the Court. Subject to the issuance of the Order, each of the
Agency Documents has been duly executed and delivered by Merchant and
constitutes the legal, valid and binding obligation of Merchant enforceable in
accordance with its terms. No court order or decree of any federal, state or
local governmental authority or regulatory body is in effect that would prevent
or impair, or is required for Merchant's
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consummation of, the transactions contemplated by this Agreement, and no consent
of any third party which has not been obtained is required therefor, except for
the consent of the Court. After giving effect to the Order, no contract or other
agreement to which Merchant is a party or by which the Merchant is otherwise
bound will prevent or impair the consummation of the Sale and the other
transactions contemplated by this Agreement.
(c) Since June 1, 1998, Merchant has operated the Stores, and
shall continue to operate the Stores, in the ordinary course of business.
Merchant has and shall take, prior to the date of the taking of the inventory,
all appropriate retail price markdowns as is consistent with its ordinary course
pricing practices and has not since June 1, 1998 raised and shall not raise the
retail prices of any of such Merchandise outside the ordinary course of
business. Merchant has not and shall not purchase or transfer to or from the
Stores any Merchandise or supplies outside of the ordinary course of business or
remove any indication of clearance merchandise or point of sale promotions in
anticipation of the taking of the inventory.
(d) Subject to the entry of the Order, Merchant owns and will
own at all times during the Sale Term, good and marketable title to all of the
Merchandise free and clear of all liens, claims and encumbrances of any nature
and is not aware of any Merchandise not being in compliance with all applicable
consumer product safety rules or other applicable federal, state, or local
product safety standards or rules. Merchant shall not create, incur, assume or
suffer to exist any security interest, lien or other charge or encumbrance upon
or with respect to any of the Merchandise or the Proceeds, except for the lien
in favor of the Agent granted pursuant to Section 15 below, and except for
presently existing liens which, in accordance with the Order, shall attach only
to the Guaranteed Amount.
(e) Merchant has maintained its pricing files in the ordinary
course of business, and prices charged to the public for goods (whether
in-Store, by advertisement or otherwise) are the same in all material respects
as set forth in such pricing files for the periods indicated therein. All
pricing files and records relative to the Merchandise have been made available
to Agent. All such pricing files and records are true and accurate in all
material respects as to the actual cost to Merchant for purchasing the goods
referred to therein and as to the selling price to the public for such goods as
of the dates and for the periods indicated therein.
(f) As of the Inventory Date, the levels of goods (as to
quantity) and the mix of goods (as to type, category, style, brand and
description) at the Stores are as heretofore disclosed to Agent.
(g) As of the Inventory Date, all normal course permanent
markdowns on goods located at the Stores will have been taken on a basis
consistent with Merchant's historical practices and policies.
(h) Merchant has not since April 1, 1998, and shall not up to
the Sale Commencement Date, marked up or raised the price of any items of
Merchandise, or
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removed or altered any tickets or any indicia of clearance merchandise, except
in the ordinary course of business or as previously disclosed to Agent.
(i) Merchant shall ticket or mark all items of inventory
received at the Stores prior to the Sale Commencement Date, including, in a
manner consistent with similar inventory located at the Stores and in accordance
with Merchant's historic practices and policies relative to pricing and marking
inventory.
(j) Merchant has not and shall not purchase or transfer to or
from the Stores any inventory outside the ordinary course in anticipation of the
Sale.
(k) As of the Sale Commencement Date, inventory constituting
Merchandise located at the Stores shall be no less than $22 million at the
Retail Price.
(1) No action, arbitration, suit, notice, or legal,
administrative or other proceeding before any court or governmental body has
been instituted by or against Merchant, or has been settled or resolved, or to
Merchant's knowledge, is threatened against or affects Merchant, relative to
Merchant's business or properties, or which questions the validity of this
Agreement, or that if adversely determined, would adversely affect the conduct
of the Sale.
(m) Merchant covenants to continue to operate the Stores in the
ordinary course of business from the date of this Agreement to the Sale
Commencement Date, which includes, (i) selling inventory during such period at
customary prices, (ii) not promoting or advertising any sales or in-Store
promotions (including POS promotions) other than as set forth in Section 11.1
(m), (iii) not returning inventory to vendors other than defective inventory,
and (iv) not making any Store level management personnel moves or changes at the
Stores without Agent's prior written consent. Without limiting the foregoing,
Merchant shall not conduct or advertise "going out of business", "store
closing", or "liquidation" sales at any of its stores located within the market
area of any Store at any time during the Sale Term.
(n) To the best of Merchant's knowledge, all Merchandise is in
compliance with all applicable federal, state, or local product safety laws,
rules and standards.
(o) Throughout the Sale Term, Agent shall have the right to the
uninterrupted use and occupancy of, and peaceful and quiet possession of, each
of the Stores, the assets currently located at the Stores, and the services
provided at the Stores.
(p) Merchant has paid and will continue to pay throughout the
Sale Term, (i) all self-insured or Merchant funded employee benefit programs for
employees, including health and medical benefits and insurance and all proper
claims made or to be made in accordance with such programs, (ii) all casualty,
liability, workers' compensation and other similar insurance premiums, and (iii)
all applicable taxes.
(q) Merchant has not and shall not throughout the Sale Term take
any
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actions the result of which is to increase the cost of operating the Sale,
including, without limitation, increasing salaries or other amounts payable to
employees.
(r) Merchant is not a party to any collective bargaining
agreements with its employees at the Stores and, to the best of Merchant's
knowledge, no labor unions represent Merchant's employees at the Stores.
(s) To the best of Merchant's knowledge, information and belief,
after due inquiry, all information provided by Merchant to Agent in the course
of Agent's due diligence and preparation and negotiation of this Agreement
(including information as to the Store inventories and operating expenses) is as
of the date hereof true and accurate in all material respects.
(t) Merchant covenants to maintain in good working order, at its
sole expense, the cash registers, heating system, air conditioning system,
elevators, escalators, alarm system, and all other mechanical devises and other
Store fixtures and equipment used in the ordinary course of operations of each
Store without interruption up through and including the Sale Termination Date
with respect to such Store, except to the extent any interruption arises from
the negligent acts of Agent, or its supervisors or employees located at the
Stores.
(u) As of the date of this Agreement, Merchant is current in the
payment of all post-petition telephone, utilities, taxes, insurance and
advertising liabilities. Merchant agrees that in the event that Agent receives
notice that any such post-petition liability is overdue or unpaid, or Agent is
unable to advertise the Sale with any newspapers, magazines, radio or television
stations or other media providers which target or serve the market areas of the
Stores or is unable to obtain Merchant's contract rate with any such provider as
a result of the Merchant's failure to pay its outstanding post-petition balances
with such providers, Merchant shall immediately pay such applicable balances in
full.
11.2 Agent's Representations and Covenants. Each of the members of
the Agent jointly and severally, hereby represent, warrant and covenant in favor
of Merchant as follows:
(a) Each of the members of the Agent (i) is a corporation
validly existing and in good standing in its respective State of incorporation;
(ii) has all requisite power and authority to consummate the transactions
contemplated hereby; and (iii) is and during the Sale Term will continue to be,
duly authorized and qualified to do business and in good standing in each
jurisdiction where the nature of its business or properties requires such
qualification.
(b) Agent has the right, power and authority to execute and
deliver each of the Agency Documents to which it is a party and to perform fully
its obligations thereunder. Agent has taken all necessary actions required to
authorize the execution, delivery, and performance of the Agency Documents, and
no further consent or approval
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is required on the part of Agent for Agent to enter into and deliver the Agency
Documents and to perform its obligations thereunder. Each of the Agency
Documents has been duly executed and delivered by the Agent and, subject to the
issuance of the Order, constitutes the legal, valid and binding obligation of
Agent enforceable in accordance with its terms. No court order or decree of any
federal, state or local governmental authority or regulatory body is in effect
that would prevent or impair or is required for Agent's consummation of the
transactions contemplated by this Agreement, and no consent of any third party
which has not been obtained is required therefor, except for the Court. No
contract or other agreement to which Agent is a party or by which Agent is
otherwise bound will prevent or impair the consummation of the transactions
contemplated by this Agreement.
(c) No action, arbitration, suit, notice, or legal
administrative or other proceeding before any court or governmental
body has been instituted by or against Agent, or has been settled or resolved,
or to Agent's knowledge, has been threatened against or affects Agent, which
questions the validity of this Agreement or any action taken or to be taken by
Agent in connection with this Agreement, or which if adversely determined,
would have a material adverse effect upon Agent's ability to perform its
obligations under this Agreement.
(d) Agent shall not add any goods other than Merchant's
Merchandise to the Stores prior to or during the Sale Term.
Section 12. Insurance.
12.1 Merchant's Liability Insurance. Merchant shall continue at its
cost and expense until the Sale Termination Date, in such amounts as it
currently has in effect, all of its liability insurance policies including, but
not limited to, products liability, comprehensive public liability, auto
liability and umbrella liability insurance, covering injuries to persons and
property in, or in connection with Merchant's operation of the Stores, and shall
cause Agent to be named an additional named insured with respect to all such
policies. Prior to the Sale Commencement Date, Merchant shall deliver to Agent
certificates evidencing such insurance setting forth the duration thereof and
naming Agent as an additional named insured, in form reasonably satisfactory to
Agent. All such policies shall require at least thirty (30) days prior notice to
Agent of cancellation, non-renewal or material change. In the event of a claim
under any such policies Merchant shall be responsible for the payment of all
deductibles, retention's or self-insured amounts thereunder, unless it is
determined that liability arose by reason of the wrongful acts or omissions or
negligence of Agent, or Agent's employees, independent contractors or agents
(other than Merchant's employees).
12.2 Merchant's Casualty Insurance. Merchant will provide throughout
the Sale Term, at Agent's cost as a Sale Expense, fire, flood, theft and
extended coverage casualty insurance covering the Merchandise in a total amount
equal to no less than the Retail Price thereof. From and after the date of this
Agreement until the Sale Termination Date, all such policies will name Agent as
loss payee. In the event of a loss to the Merchandise
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on or after the date of this Agreement, the proceeds of such insurance
attributable to the Merchandise plus any self insurance amounts and the amount
of any deductible (which amounts shall be paid by Merchant), shall constitute
Proceeds hereunder and shall be paid to Agent. In the event of such a loss Agent
shall have the sole right to adjust the loss with the insurer. Prior to the Sale
Commencement Date, Merchant shall deliver to Agent certificates evidencing such
insurance setting forth the duration thereof and naming Agent as loss payee, in
form and substance reasonably satisfactory to Agent. All such policies, shall
require at least thirty (30) days prior notice to Agent of cancellation,
non-renewal or material change. Merchant shall not make any change in the amount
of any deductibles or self insurance amounts prior to the Sale Termination Date
without Agent's prior written consent.
12.3 Agent's Insurance. Agent shall maintain at Agent's cost and
expense throughout the Sale Term, in such amounts as it currently has in effect,
comprehensive public liability and automobile liability insurance policies
covering injuries to persons and property in or in connection with Agent's
agency at the Stores, and shall cause Merchant to be named as an additional
insured with respect to such policies. Prior to the Sale Commencement Date,
Agent shall deliver to Merchant certificates evidencing such insurance policies
setting forth the duration thereof and naming Merchant as an additional insured,
in form and substance reasonably satisfactory to Merchant. In the event of a
claim under any such policies Agent shall be responsible for the payment of all
deductibles, retention's or self-insured amounts thereunder, unless it is
determined that liability arose by reason of the wrongful acts or omissions or
negligence of Merchant or Merchant's employees, independent contractors or
agents (other than Agent or Agent's employees, agents or independent
contractors).
12.4 Worker's Compensation Insurance. Merchant shall at all times
during the Sale Term maintain in full force and effect worker's compensation
insurance (including employer liability insurance) covering all Retained
Employees in compliance with all statutory requirements. Prior to the Sale
Commencement Date, Merchant shall deliver to Agent a certificate of its
insurance broker or carder evidencing such insurance.
12.5 Risk of Loss. Without limiting any other provision of this
Agreement, Merchant acknowledges that Agent is conducting the Sale on behalf of
Merchant solely in the capacity of an agent, and that in such capacity (i) Agent
shall not be deemed to be in possession or control of the Stores or the assets
located therein or associated therewith, or of Merchant's employees located at
the Stores, and (ii) except as expressly provided in this Agreement, Agent does
not assume any of Merchant's obligations or liabilities with respect to any of
the foregoing. Merchant and Agent agree that Merchant shall bear all
responsibility for liability claims of customers, employees and other persons
arising from events occurring at the Stores during and after the Sale Term,
except to the extent any such claim arises from the acts or omissions of Agent,
or its supervisors or employees located at the Stores (an "Agent Claim"). In the
event of any such liability claim other than an Agent Claim, Merchant shall
administer such claim and shall present such claim to Merchant's liability
insurance carrier in accordance with Merchant's historic policies and
procedures, and shall provide a copy of the initial documentation relating to
such
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claim to Agent. To the extent that Merchant and Agent agree that a claim
constitutes an Agent Claim, Agent shall administer such claim and shall present
such claim to its liability insurance carrier, and shall provide a copy of the
initial documentation relating to such claim to Merchant. In the event that
Merchant and Agent cannot agree whether a claim constitutes an Agent Claim,
each party shall present the claim to its own liability insurance carrier, and
a copy of the initial claim documentation shall be delivered to the other
party.
Section 13. Indemnification.
13.1 Merchant Indemnification. Merchant shall indemnify and hold Agent
and its officers, directors, employees, agents and independent contractors
(collectively, "Agent Indemnified Parties") harmless from and against all
claims, demands, penalties, losses, liability or damage, including, without
limitation, reasonable attorneys' fees and expenses, directly or indirectly
asserted against, resulting from, or related to:
(i) Merchant's material breach of or failure to comply with
any of its agreements, covenants, representations or warranties contains in any
Agency Document;
(ii) Subject to Agent's compliance with its obligations
under Section 9.3 hereof, any failure of Merchant to pay to its employees any
wages, salaries or benefits due to such employees during the Sale Term;
(iii) Subject to Agent's compliance with its obligations
under Section 8.3 hereof, any failure by Merchant to pay any Sales Taxes to the
proper taxing authorities or to properly file with any taxing authorities any
reports or documents required by applicable law to be filed in respect thereof;
(iv) any consumer warranty or products liability claims
relating to Merchandise;
(v) any liability or other claims asserted by customers,
any of Merchant's employees, or any other person against any Agent Indemnified
Party (including, without limitation, claims by employees arising under
collective bargaining agreements, worker's compensation or under the WARN Act),
except for Agent Claims; and
(vi) the gross negligence or willful misconduct of Merchant
or any of its officers, directors, employees, agents or representatives.
13.2 Agent Indemnification. Agent shall indemnify and hold Merchant
and its officers, directors, employees, agents and representatives harmless from
and against ail claims, demands, penalties, losses, liability or damage,
including, without limitation, reasonable attorneys' fees and expenses, directly
or indirectly asserted against, resulting from, or related to:
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(i) Agent's material breach of or failure to comply with
any of its agreements, covenants, representations or warranties contained in any
Agency Document;
(ii) any harassment or any other unlawful, tortuous or
otherwise actionable treatment of any employees or agents of Merchant by Agent
or any of its representatives;
(iii) any claims by any party engaged by Agent as an employee
or independent contractor arising out of such employment and any governmental
claims related thereto;
(iv) any Agent Claims;
(v) the gross negligence or willful misconduct of Agent or
any of its officer, directors, employees, agents or representatives; and
(vi) Agent's failure to pay to Merchant any Sales Taxes when
due under Section 8.3 hereof and any payroll when due under Section 9-3 hereof.
Section 14. Defaults. The following shall constitute "Events of
Default" hereunder:
(a) Merchant's or Agent's failure to perform any of their
respective material obligations hereunder, which failure shall continue uncured
seven (7) days after written notice thereof to the defaulting party; or
(b) Any representation or warranty made by Merchant or
Agent proves untrue in any material respect as of the date made; or
(c) The Sale is terminated or materially interrupted at a
Store as a result of an Event of Default by Merchant.
In the event of an Event of Default, any party's damages or entitlement
to equitable relief shall be determined by the Court.
Section 15. Security Interest. Upon payment of the initial payment
on account of the Guaranteed Amount to Merchant and in consideration of Agent's
payment of the Guaranteed Amount and the Sale Expenses, and the provision of
services hereunder to Merchant, Merchant hereby grants to Agent a first priority
security interest in and lien upon the Merchandise and the Proceeds to secure
all obligations of Merchant to Agent hereunder. Merchant shall execute all such
documents and take all such other actions as are reasonably required to perfect
and maintain such security interest as a valid and perfected first priority
security interest.
Section 16. Sale of FF&E. If requested by Merchant, Agent shall
advertise in the context of advertising for the Sale that items of FF&E at the
Stores are for sale, and
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<PAGE> 21
shall contact and solicit known purchasers and dealers of furniture and
fixtures, Merchant shall notify Agent if any such FF&E are to be excluded from
sale and/or if terms and conditions of sale are to be set or restricted in any
manner, In consideration of providing such services, Agent shall retain ten
percent (10%) of receipts (net of Sales Taxes) from all sales or other
dispositions of FF&E. In addition, Merchant shall reimburse Agent for Agent's
reasonable out of pocket expenses incurred in connection with the liquidation of
FF&E which have been previously approved by Merchant, including, without
limitation, costs of commissions and advertising. Agent shall have no liability
to Merchant for its failure to sell any or all of the FF&E.
Section 17. [Intentionally Omitted]
Section 18. Miscellaneous.
18.1 Notices. All notices and communications provided for pursuant to
this Agreement shall be in writing, and sent by hand, by facsimile, or a
recognized overnight delivery service, as follows:
If to the Agent: Traub Bonacquist & Fox
655 Third Avenue
New York, NY 10017
Attn: Paul Traub, Esquire
With a copy to: Schottenstein Bernstein Capital Group, LLC
1010 North Boulevard
Suite 330
Great Neck, NY 11021
Attn: Mr. Scott Bernstein
and Gordon Brothers Retail Partners, LLC
40 Broad Street
Boston, MA 02109
Attn: Mr. Michael Keefe
and The OZER Group, LLC
Hillside Office Building
75 Second Avenue
Suite 400
Needham, MA 20494
Attn: Mr. William Weinstein
If to Merchant: Crown Books Corporation
3300 75th Avenue
Landover, MD 20785
Attn: Mr. Steven Pate
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With a copy to: S. David Peress, Esquire
Young Conaway Stargatt & Taylor, LLP
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, DE 19899
18.2 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed and construed in accordance with the laws of the State of Delaware
without regard to conflicts of laws principles thereof. The parties hereto agree
that any legal action or proceeding arising out of or in connection with this
Agreement shall be adjudicated by the Court, and by execution of this Agreement
each party hereby irrevocably accepts and submits to the jurisdiction of the
Court with respect to any such action or proceeding.
18.3 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes and cancels all prior agreements, including, but not limited to,
all proposals, letters of intent or representations, written or oral, with
respect thereto.
18.4 Amendments. This Agreement may not be modified except in a
written instrument executed by each of the parties hereto.
18.5 No Waiver. No consent or waiver by any party, express or implied,
to or of any breach or default by the other in the performance of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance by such other party of the
same or any other obligation of such party. Failure on the part of any party to
complain of any act or failure to act by the other party or to declare the other
party in default, irrespective of how long such failure continues, shall not
constitute a waiver by such party of its rights hereunder.
18.6 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon Agent and Merchant, and their respective successors and
assigns.
18.7 Execution in Counterparts. This Agreement may be executed in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one agreement. This Agreement may be
executed by facsimile, and such facsimile signature shall be treated as an
original signature hereunder.
18.8 Section Headings. The headings of sections of this Agreement are
inserted for convenience only and shall not be considered for the purpose of
determining the meaning or legal effect of any provisions hereof.
18.9 Survival. All representations, warranties, covenants and
agreements made by the parties hereto shall be continuing, shall be
considered to have been relied upon by the parties and shall survive the
execution, delivery, performance and/or termination of this Agreement.
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<PAGE> 23
IN WITNESS WHEREOF, Agent and Merchant hereby execute this Agreement by
their duly authorized representatives as of the day and year first written
above.
SCHOTTENSCHEIN BERNSTEIN CAPITAL
GROUP, LLC, GORDON BROTHERS RETAIL
PARTNERS, LLC, and THE OZER GROUP, LLC
By: /s/ WILLIAM WEINSTEIN
---------------------------------------------
By William Weinstein of The OZER Group, LLC,
one of the Joint Venturers
CROWN BOOKS CORPORATION
By: /s/ ANNA CURRENCE
---------------------------------------------
Its: PRESIDENT
<PAGE> 1
EXHIBIT 99.4
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
CROWN BOOKS CORPORATION, )
SUPER CROWN BOOKS CORPORATION, ) Case No. 98-1575 (RRM)
CROWN BOOKS EAST CORPORATION, )
CROWN BOOKS WEST CORPORATION,)
CROWN BOOKS NATIONAL CORPORATION, ) (Jointly Administered)
and CROWN DHC CORPORATION, )
)
Debtors. )
ORDER AUTHORIZING THE DEBTORS
TO (a) RETURN GOODS PURSUANT TO SECTION 546(g)*
OF THE BANKRUPTCY CODE AND (b) OBTAIN
VENDOR FINANCING PURSUANT TO
SECTION 364(c)(1) OF THE BANKRUPTCY CODE
Upon consideration of the "Motion for Order (i) Authorizing the
Debtors On an Interim Basis to (a) Return Goods Pursuant to Section 546(g)* of
the Bankruptcy Code and (b) Obtain Vendor Financing Pursuant to Section
364(c)(1) of the Bankruptcy Code, (ii) Scheduling Hearing to Consider Request
for Further Authorization and (iii) Approving Settlement Agreement, Pursuant to
Bankruptcy Rule 9019(a), Between the Debtors and Ingram Book Company", as
modified, (as so modified, the "Motion") filed by Crown Books Corporation
("Crown"), Super Crown Books Corporation, Crown Books East Corporation, Crown
Books West Corporation, Crown Books National Corporation and Crown DHC
Corporation (collectively with Crown, the "Debtors"), as debtors and debtors in
possession herein; and sufficient notice of the relief requested in the Motion
having been given; and all capitalized terms not defined herein having the
meanings ascribed to such terms in the Motion or in the Book Return Agreement
(the "Agreement") annexed hereto as Exhibit A; and this Court having concluded,
based on the filings herein and the
<PAGE> 2
record in this matter, that good cause exists for the relief sought in the
Motion and that approval of the Agreement is in the best interests of the
Debtors and their estates, it is
ORDERED, that the Motion is hereby granted and approved on the
terms and to the extent set forth below; and it is further
ORDERED, that Ingram Book Company ("Ingram") is found and
determined to have an allowed general unsecured claim against Crown in the
amount of $12.3 million (the "Ingram Claim Amount") subject to: (i) the 502(d)
Reservation, as defined below, and (ii) reduction not to exceed $1 million and
then only if and to the extent that within thirty days from the date hereof, the
Committee, Ingram and the Debtors are unable to satisfactorily reconcile a
discrepancy, in the approximate amount of $1 million, between the December 31,
1997 balance of the Debtors' obligation to Ingram as reflected on the books and
records of the Debtors and that reflected on the books and records of Ingram. In
the event the Committee, Ingram and the Debtors cannot consensually reconcile
such discrepancy within such 30 day period, any resulting dispute shall be
presented to the Court for determination; and it is further
ORDERED, that the Debtors are hereby authorized to enter into the
Agreement with Ingram and in connection therewith to implement the Pre-Petition
Returns Program (as described in the Agreement) up to a maximum amount equal to
the Ingram Claim Amount; and it is further
ORDERED, that pursuant to Section 546(g)* of the Bankruptcy Code,
Ingram shall be entitled to credit against the Ingram Claim Amount the value of
all books and other materials returned by the Debtors to Ingram, the amount of
such credit to be calculated in accordance with the terms of the Agreement; and
it is further
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<PAGE> 3
ORDERED, that the Debtors are hereby authorized to obtain
post-petition trade credit from Ingram pursuant to Section 364(c)(1) of the
Bankruptcy Code on the terms and conditions set forth in the Agreement (the
"Post-Petition Trade Facility"); and it is further
ORDERED, that, subject to the Third-Party Avoidance Actions
Carve-Out and the Ingram Avoidance Actions Reservation, as defined below, all
post-petition trade credit provided by Ingram pursuant to the Agreement shall be
granted a super-priority administrative expense claim as set forth in section
364(c)(1) of the Bankruptcy Code (the "Super-Priority Claim"), which
Super-Priority Claim shall be (A) junior only to (i) the super-priority
administrative expense claims, (and all "carve-outs" therefrom) granted and
created in the Debtors' financing arrangements and agreements with Paragon
Capital LLC ("Paragon") and Foothill Capital Corporation ("Foothill," and
together with Paragon, the "Lenders") or any successor or replacement debtor in
possession lender up to a maximum principal amount of $40 million (and all
carve-outs therefrom substantially similar to the carve-outs granted by
Lenders); provided, however, that the Super-Priority Claim shall not be junior
to such super-priority administrative expense claim of the Lenders to the extent
of, and with respect to, the limitation on the distribution on account of the
Lenders' section 364(c)(1) claim from the proceeds, if any, of Ingram Avoidance
Actions (as hereafter defined) as provided in the Final Order dated July 31,
1998 regarding the Lenders and (ii) the claims of any professionals hired by the
Debtors or the Creditors' Committee and approved by the Court, and (B) pari
passu with the claim of any other trade vendor which extends post-petition
credit to the Debtors in connection with a 546(g)* program on terms no less
favorable than those set forth in paragraph 4(a) of the
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<PAGE> 4
Agreement; and it is further
ORDERED, that notwithstanding anything in this Order to the
contrary, Ingram has agreed that its right to receive a payment or distribution
on account of the Super-Priority Claim shall not extend to any causes of action
arising under Chapter 5 of the Bankruptcy Code in which the defendant or
potential defendant is any entity other than Ingram itself ("Third-Party
Avoidance Actions") or to the proceeds thereof, and any deficiency remaining in
the satisfaction of any of Ingram's claims after application of the assets of
the Debtors' estates, other than the Third-Party Avoidance Actions and the
proceeds thereof, shall constitute a general unsecured claim of Ingram (the
foregoing exclusion of Third-Party Avoidance Actions and their proceeds from
Ingram's right to receive a payment or distribution on account of the
Super-Priority Claim is referred to in this Order as the "Third-Party Avoidance
Actions Carve-Out"); and it is further
ORDERED, that nothing in this Order shall constitute a finding of
fact, conclusion of law, or determination of any kind or nature whatsoever as to
whether or not Ingram's right to receive a payment or distribution on account of
the Super-Priority Claim extends to any causes of action arising under Chapter 5
of the Bankruptcy Code in which the defendant or potential defendant is Ingram
("Ingram Avoidance Actions") or to the proceeds thereof, and the Creditors'
Committee, Ingram and any subsequently appointed trustee in the Debtors' cases
fully reserve their rights, claims, and defenses, to assert on any available
factual or legal basis whatsoever, at a hearing to be held if necessary at a
later date and upon notice, that any payment or distribution on account of the
Super-Priority Claim should or should not extend to the Ingram Avoidance Actions
and their proceeds (the foregoing reservation of rights, claims and defenses
with respect to the
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<PAGE> 5
Ingram Avoidance Actions and their proceeds is referred to in this Order as the
"Ingram Avoidance Actions Reservation"); and it is further
ORDERED, that nothing in this Order shall constitute a finding of
fact, conclusion of law, or determination of any kind or nature whatsoever as to
whether or not the Ingram Claim Amount is subject to disallowance in whole or in
part under section 502(d) of the Bankruptcy Code and the Creditors' Committee,
Ingram and any trustee subsequently appointed in the Debtors' cases fully
reserve their rights, claims, and defenses, to assert on any available factual
or legal basis whatsoever, at a hearing to be held if necessary at a later date
and upon notice, that the Ingram Claim Amount is or is not subject to
disallowance under section 502(d) of the Bankruptcy Code (the foregoing
reservation of rights, claims and defenses with respect to the Ingram Claim
Amount is referred to in this Order as the "502(d) Reservation"); and it is
further
ORDERED, that Crown is authorized to sell for cash to Ingram up
to 35% of the inventory located in those stores identified in the Motion of
Debtor-in-Possession Pursuant to Sections 363 and 105(a) of the Bankruptcy Code
for an Order: (a) Approving the Closing of Certain Stores, (b) Authorizing
"Going-Out-Of-Business" Sales at those Locations, (c) Exempting the Sales from
State and Local Regulatory Laws and Lease Provisions with which the Debtor might
Otherwise be Required to Comply, (d) Authorizing the Debtor to Enter into an
Agency Agreement, (e) Authorizing the Conduct of an Auction and (f) Approving
Certain Notice and Bidding Procedures, Including Bid Protection and a Break-Up
Fee (Docket No. 47) and at which going out of business sales occur (the "GOB
Inventory") at a cash price equal to 77.5% of Crown's cost for such inventory on
the terms set forth in the Agreement. The proceeds from the sale of the
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<PAGE> 6
GOB Inventory shall be paid to the Lenders in satisfaction of their
post-petition claim. In connection with its acquisition of the GOB Inventory,
Ingram shall be deemed a good faith purchaser within the meaning of section
363(m) of the Bankruptcy Code; and it is further
ORDERED, that the Agreement has been negotiated in good faith and
at arm's length between the Debtors and Ingram, with each party represented by
counsel, and any credit extended by Ingram under the Post-Petition Trade
Facility shall be deemed to have been extended in good faith, as that term is
used in Section 364(e) of the Bankruptcy Code. Subject to the final decretal
paragraph of this Order, any stay, modification, reversal or vacation of this
Order shall not affect the Super-Priority Claim granted to Ingram pursuant to
this Order, or the validity of any obligation of the Debtors to Ingram incurred
pursuant to this Order; and notwithstanding any such stay, modification,
reversal or vacation, all post-petition extensions of trade credit made by
Ingram pursuant to this Order and any obligations incurred by the Debtors
pursuant hereto prior to the effective date of such stay, modification, reversal
or vacation shall be governed by the original provisions hereof, and Ingram
shall be entitled to all the rights, privileges, benefits and remedies,
including the priority granted herein, with respect to such obligations.
Furthermore, the super-priority administrative expense claim granted in
accordance with the Agreement and this Order will continue in full force and
effect notwithstanding the conversion or dismissal of this case or the entry of
an order confirming any plan in this Chapter 11 case; however, Ingram shall not
be obligated to continue to extend credit or otherwise sell merchandise to the
Debtors upon such event; and it is further
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<PAGE> 7
ORDERED, that in order to implement and give effect to the 502(d)
Reservation and Ingram Avoidance Actions Reservation set forth above, no
subsequent determination of the matters reserved thereby shall constitute or be
deemed to constitute a stay, modification, reversal or vacation of this Order,
but shall instead constitute a de novo adjudication of issues that have been
specifically reserved by agreement of the parties for future determination if
necessary.
Dated: August 20, 1998
Wilmington, Delaware /s/ RODERICK R. MCKELVIE
------------------------------------
RODERICK R. MCKELVIE
JUDGE, UNITED STATES DISTRICT COURT
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